commission's answer · management with international organisations, 8 agreements were signed...

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9/01/2014

Additional questions to Commissioner Piebalgs

1. In reply to question 16a. the following questions have not been answered:

a. How many such contracts are signed between IMG and EC and what is thetotal value of and for which beneficiary countries?

Commission's answer :

This international organisation was established in 1994 by a number of States, under the aegisof the UNHCR, to address primarily the reconstruction of Bosnia and Herzegovina. Duringthe subsequent years, IMG has extended its geographic and thematic mandate, so it currentlyoperates wherever its members request it. IMG is specialised in institutional and capacitybuilding support to developed countries, in particular in post-crisis/post-conflict areas. Suchsupport concerns areas such as infrastructure, environment, energy, rural development, SMEdevelopment, regional development, education and governance. This organisation has beenused by the Commission and many EU Member States for this area of specialisation.

The experience IMG has gained in providing support to institutional and capacity buildingactivities in middle-income and developing countries, in particular in the countries of theformer Yugoslavia, as well as the significant expertise it can call upon, has given theorganisation a set of skills which - on occasions – can be called upon to apply also in otherspecific (post-)crisis/(post-)conflict areas such as in Palestine.

Until 2010, the Commission worked with IMG in the form of procurement (works, services)contracts and grants. Since IMG operates mainly in countries in crisis the direct award ofcontracts and grants was justified under Article 168(2) of the Implementing Rules of theFinancial Regulation (today “Rules of Application”) concerning crisis situations. Other casesof direct award were justified on the cases of provided in paragraph 1 of that Article (urgency,highly specialised nature of the organisation, etc).

As of 2011, it was also possible to use joint management since the four pillar-evaluationprovided for in the Financial Regulation was completed in 2010.

The question on number of contracts and total value has been answered in Question 16(a) ofthe initial Written Questionnaire as follows:

“Detailed data is available on the table:

Number ofcontracts

Amountcontracted (Meuro)

Joint management 8 42.8

Centralised anddecentralisedmanagement

Framework contract(competitive bidding)

10 1.2

Attribution following acall for tenders

4 7.1

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Negotiated procedures 26 20.1Award following a callfor proposals

2 0.08

Direct award of grants 23 69.8Total 73 141

65 service and grant contracts were signed between 1995 and 2013 for projects in Azerbaijan,Bosnia and Herzegovina, Cyprus, Egypt, FYROM, Haiti, Iraq, Kosovo, Lebanon, Libya,Myanmar, Serbia, Tunisia and West Bank and Gaza Strip, . Furthermore, under JointManagement with International Organisations, 8 agreements were signed with IMG between2011 and 2013 for projects in Kosovo, Libya, Myanmar and South Sudan, since IMG isconsidered as an international organisation in the sense of article 43 of the Rules ofApplication of the Financial Regulation by EuropeAid since 2004 and the assessment of IMG(the so-called “four pillar review”) was carried out in 2010.

The European Commission, acting on behalf of the EU, is not the only donor working withIMG. According to the information provided by IMG, countries such as United Kingdom,Sweden, Italy, Spain, Croatia, United States, Norway or Switzerland also work or haveworked with IMG. The funds from the EU represent above 50% of the IMG’s portfolio ofprojects, while EU Member States represent around 20-25% and non EU-States less than 20%in the 2010-2013 period.

b. Has IMG signed only joint management contracts with EC or has it also signedcontracts under direct centralised management mode or any other managementmode and when and for which beneficiary country and why was it necessary?


Joint Management with IMG is only used since 2010, when the four-pillar assessment of IMGwas completed (it was later updated in 2012). Under Joint Management 8 agreements weresigned between 2011 and 2013 for projects in Kosovo, Libya, Myanmar, South Sudan,concerning public Administration capacity building.

The European Commission may entrust implementation tasks to an international organisationthrough 'joint management'. In this manner, the international organisation becomes thedelegatee of the European Commission so that it can implement EU/EDF resources throughthe launch of call for tenders or proposals, award grants, carry out payments, etc., accordingto its rules (see article 53d of the EU Budget Financial Regulation 1605/2002 and article 29 ofthe 10th EDF Financial Regulation). The choice of this method of implementation is reflectedin the corresponding financing decision approved by the European Commission.

The international organisation and the projects to be financed under joint management mustbe chosen in an objective and transparent manner. This means in practice that the decision of

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the authorising officer needs to be justified and duly documented. The Commission hasdeveloped practical operational guidance on when and how to work with internationalorganisations, in particular, identifying the issues that should be considered before makingthis choice (notably, the approval of EuropeAid’s Quality Support Group).

The chosen method of implementation (or management mode) needs to be specified in thefinancing decision, as indicated above. This means that the decision is subject to aninterservice consultation with Commission’s services, including DG BUDG and the LegalService, and to the procedure provided for in the comitology Regulation and, finally, adoptedby the College.

The remaining 65 service and grant contracts mentioned in the reply to question 1(a) aresigned under direct centralised or decentralised management mode.

Until 2010, the Commission worked with IMG only through procurement (works, services)contracts and grants, either through competitive procedures or through direct award, incompliance with the Financial Regulation and its Implementing Rules. In most cases, sinceIMG operates mainly in countries in crisis or post-crisis, the direct award of contracts andgrants was justified under Article 168(2) of the Implementing Rules of the FinancialRegulation (today “Rules of Application”). Other cases of direct award were justified on thecases of provided in paragraph 1 of that Article (e.g. highly specialised nature of theorganisation, etc).

c. Is IMG regarded by the EU institutions as an International Organisation?


As explained in Question 16(a) of the initial Written Questionnaire, the Financial Regulationintroduced in 2003 a management mode for international organisations referred to as “jointmanagement”. For that reason, Article 43 of its Implementing Rules of the FinancialRegulation (today referred to as “Rules of Application”) introduced a definition ofinternational organisation: “international public sector organisations set up byintergovernmental agreements and specialised agencies set up by such organisations”.

Before considering whether an entity is an international organisation, the responsibleauthorising officer should assess whether the entity complies with the conditions of article 43.

EuropeAid has recognised IMG as an International organisation in the sense of Art 43 of theFinancial Regulation on the basis of its own assessment. The Director General of EuropeAidhas signed in 2004 and later in 2008 a declaration based on this assessment that confirmedIMG as an International Organisation in the sense of Art 43 of the Financial Regulation.

The assessment carried out by EuropeAid was based on the information available to theCommission, according to which representatives of several States signed the “Establishmentof the IMG” in 1994 under the aegis of UNHCR, who chaired the meeting that formally

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created IMG. Amongst these States there were some EU Member States such as Austria,Belgium, France, Germany, Greece, Italy, Spain, Portugal, the Netherlands and the UK.

According to the information received from the organisation itself, the countries where IMGoperates have recognised IMG as an international organisation, such as Belgium, Bosnia-Herzegovina, FYROM, Lebanon, Myanmar and Serbia. The Palestinian Authority has alsorecognised IMG as an international organisation. They have consequently granted the GeneralManager and Heads of Offices the immunities, privileges and facilities of the diplomaticpersonnel of diplomatic missions.

2. In reply to question 16a. the Commissioner replied that there had been a UNHCRinvolvement in the founding of the IMG and that IMG enjoyed the same privilegesand immunities as those enjoyed by the UN specialized Agencies.

a. Could the Commission provide Parliament with the document?


The meeting at which the establishment of IMG was signed by the representatives of 17 Stateswas chaired by UNHCR, who signed a letter to certify this.

The Establishment documents with the letter signed by UNHCR and the Statutes are publiclyavailable at the following site:

http://www.img-int.org/Central/Public08/Documents.aspx

See in particular the Establishment of IMG in 1994 and Article 19 of its Statute:

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b. Is IMG recognized by the European Commission as a UN specialized Agency?


The European Commission has not recognised IMG as a UN specialized agency. Asmentioned in the reply to question 1(c), EuropeAid has recognised IMG as an Internationalorganisation in the sense of Art 43 of the Financial Regulation on the basis of its ownassessment. Other examples of International organisations not being UN specialized agenciesare: the International Committee of the Red Cross, the International Federation of NationalRed Cross and Red Crescent Societies, the International Organisation for Migration, etc.

c. Is IMG listed under the UN specialized Agencies published by the UNservices?


IMG is not listed under the UN specialized Agencies published by the UN services.

3. In reply to question 16a. the Commissioner replied that IMG had hired a private lawfirm in order to recognize itself as an international organization.

a. What is the normal procedure to obtain the European Commission recognitionas an international organization?


As mentioned in the answer to question 1(c) and 2(b), it is up to the responsible authorisingofficer to assess whether an entity complies with the definition provided for in article 43. Inthe case of IMG, this was done by the Director-General of EuropeAid in 2004.

The Financial Regulation introduced in 2003 a management mode for internationalorganisations referred to as “joint management”. For that reason, Article 43 of itsImplementing Rules of the Financial Regulation (today referred to as “Rules of Application”)introduced a definition of international organisation: “international public sectororganisations set up by intergovernmental agreements and specialised agencies set up bysuch organisations”.

Before considering whether an entity is an international organisation, the responsibleauthorising officer should assess whether the entity complies with the conditions of article 43.This is done by the Commission Services following a review of the available documentation.

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Before the Commission decides to entrust budget implementation under Joint managementmode to a certain International Organisation, it has to verify, according to art 53d of FinancialRegulation of General Budget, whether the Organisation applies in their accounting, auditinternal control and procurement procedures (the so-called “four pillars”) standards whichoffer guarantees equivalent to internationally accepted standards. This was the procedure until31/12/2013. As of 01/01/2014, the relevant article of the Financial Regulation of generalbudget is article 60.2. The pillars to be assessed are accounting, audit, internal control,procurement procedures, grant procedures, financial instruments and sub-delegation.

b. Would the Commission advice to hire a private law firm when an organizationundergoes the “normal procedure” to obtain the status as an internationalorganization?


As mentioned in the answer to questions 1(c), 2(b) and 3(a), it is up to the responsibleauthorising officer to assess whether an entity complies with the definition of article 43.

The Commission does not advice on how organisations have to obtain the status ofInternational organisations. In particular, the Commission takes no position on whether it isappropriate for organisations to hire a private law firm for such a purpose.

c. Did the Commission, at some point in the dealings with IMG, require IMG tohire a private law firm?


As mentioned in the answer to question 3(b), the Commission does not advise on howorganisations have to obtain the status of International organisations. It is not for theCommission to give such advices. The Commission did not require IMG to hire a private lawfirm.

4. In reply to question 16a. the Commissioner replied that IMG was recognized as a taxfree organization.

a. Who recognized IMG as a tax free organization?


Bosnia-Herzegovina, FYROM, Kosovo, Lebanon, Myanmar, the Palestinian Authority andSerbia have granted tax/VAT exemption to IMG.

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b. Why would Belgium not recognize the fiscal immunity status of IMG?


Pursuant to the information provided by IMG, this organisation is currently negotiating aVAT exemption with the Belgian Ministry of Finance following the signature of theHeadquarters Agreement with Belgium.

5. In reply to question 16a. the Commissioner replied that the Joint Management withIMG had only been used since 2010, when the four pillar assessment of IMG had beencompleted.

a. Has the 2010 four-pillar assessment concluded that IMG is fully compliant?


Pillar assessments are launched when the Commission intends to sign contribution agreementswith an International Organization. In many cases, judging that an organisation is fullycompliant is a gradual process: when auditors consider that one or more of the pillars shouldbe improved, they make recommendations in this regard. Then a second review is launched tovalidate the measures taken by the organisation to address these recommendations. Duringthis period, each authorizing officer considering signing a contribution agreement with thisentity has to analyse whether the areas for improvement indicated by the auditors could havean impact on the EU financial interests related to the specific action envisaged. If not, theymay decide to sign a contribution agreement with the entity, even if one or more of suchrecommendation is not yet been addressed.

In the case of IMG, the 2010 four-pillar assessment concluded that once a very limited efforton the accounting standard is put in place (such as better disclosure of entity identification infinancial statements; adding budgetary information to financial statements; addingmanagement report to the financial statements) and once some prerequisite guidelines forprocurement, if any, are published, IMG would be fully compliant in line with theaforementioned recommendations. These recommendations were duly addressed by IMG bythe time the next assessment was conducted (2012).

The reports on the pillar assessment are provided to the European Parliament according to theprovision laid down in the Framework Agreement (Annex II Forwarding of confidentialinformation to Parliament).

b. What were the results of the four-pillar assessment?

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The 2010 four-pillar assessment concluded that:

- Accounting standards

IMG applies accounting standards that generally comply with the benchmarks in place. Theexternal auditors noted that very limited efforts (such as better disclosure of entityidentification in financial statements; add budgetary information to financial statements; addmanagement report to the financial statements) are needed to fully comply with thebenchmarks.

- Audit standards

IMG applies audit standards that comply with the benchmarks.

- Internal control standards –Part 1: Internal control framework

IMG foresees an internal control system that generally complies with the normativeframework. Various comprehensive and detailed policies and procedures are in place as wellas an adequate level of segregation of duties. However some improvements are advised suchas a separate audit committee and a separate code of conduct.

- Internal control standards – Part 2: Internal audit standards

IMG applies internal audit standards that generally comply with the benchmarks.

- Procurement standards (including ex-post publication of beneficiaries)

The procurement standards applied by IMG are very much equivalent to internationalaccepted standards as set out in the benchmarks.

Since IMG does not work with Implementing Partners and does not grant funds, no rules andprocedures for implementing partners are foreseen. In case IMG would outsource themanagement or implementation of funds, specific accounting, auditing, internal control andprocurement guidelines should be available on beforehand in case IMG would start doing so.

When the assessment of an entity concludes that there are elements that are not fullycompliant or requiring improvement, the Commission can, for instance, add to the contractspecial conditions covering such elements. Below are examples of IOs in that situation:

CIFOR (Center for International Forestry Research)

To be added to the Special Conditions:

1) In addition to article 2 of General Conditions, and in the case where external partners areused for the implementation of the action, the Organisation shall report in detail (in bothfinancial and narrative reports) who is implementing the action and how is thisimplementation being controlled by the Organisation.

2) The organization shall record and publish results of its procurement award-decisionprocedures.

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UNFCCC (UN Framework Convention on Climate Change)


1) The Organization shall adopt action-specific financial statements and audit coverage forthose actions managed by its Secretariat.

2) The Organization shall, in agreement with the European Commission, implement a formalevaluation coverage to be carried out at programme level for those programmes benefittingfrom EU funding.

3) The Organization shall adopt a policy of ex-post publication of its procurement contractawards.

CTBTO (Comprehensive Nuclear Test Ban Treaty Organisation)


1) The Organization shall state explicitly what constitutes a conflict of interest in regards tothe candidates.

2) The Organization shall publish the basic details of the procurement award, such as thename of the successful bidder and the contract won.

IBAR (Inter-African Bureau for Animal Resources)

Important mitigating measures to be included in the contract:

- Lower advance payment for the first year (60%).

- Separate bank account to be opened for each project.

- Expenditure verifications to be carried out in accordance to TOR and auditor approved byEC. For projects lasting longer that 36 months request 2 expenditure verifications (one midterm and one final).

- Annual consolidated audit reports of AU-IBAR to be shared with the Delegation.

c. How have the non-compliance elements found during the four-pillarassessment been taken into account?


The concerned authorizing officers were aware of the recommendations of the pillarassessment but considered that they would not affect the good implementation of theprogramme. The follow up in 2012 confirmed that IMG took all the necessary measures toaddress the recommendations from the auditors concerning these areas for improvement.

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d. How have the found non-compliance elements affected the direct award ofContribution agreements to IMG since 2010?


The concerned authorizing officers considered that the areas for improvement included in thepillar assessment report would not affect the good implementation of the programme andconsidered that this should not affect the conclusion of contribution agreements under jointmanagement. The follow up in 2012 confirmed that IMG took all the necessary measures toaddress the recommendations from the auditors concerning these areas for improvement.

e. Which was the audit company entrusted with the four pillar assessment?


For both 2010 initial assessment and 2012 update it was Ernst & Young (EY), a multinationalprofessional services firm. EY was selected in the context of 2006 Audit Framework Contract.This means that, the Commission sent a request for services to the four frameworkcontractors. Based on the evaluation of the offers submitted (considering both financial andtechnical components) EY was selected.

f. Has the company entrusted with the four pillar assessment been duly checkedagainst any conflicts of interests?


As mentioned in the answer to question 5(e), in 2010, Ernst &Young (EY) was contractedunder 2006 Audit Framework Contract (AFC), which means that the Commission sent arequest for services to the four framework contractors. Based on the evaluation of the offerssubmitted (considering both financial and technical components) EY was selected. Afterselecting the audit firm, the Commission and EY signed the contract on the basis of thestandard template, which includes a section on conflict of interests. In Article II.3.1 of 2006AFC, it is specified that “The Contractor shall take all necessary measures to prevent anysituation that could compromise the impartial and objective performance of the contract”.

g. Has the company entrusted with the four pillar assessment had any contractualrelationship with IMG e.g. was it hired for IMG’s annual external audit?


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IMG's external auditor is E&Y Paris, while the 4 pillar assessment was conducted by E&YBrussels (two different legal entities). It is a normal practice that within the same group twodistinct legal entities carry out activities relating to the same external entity.

E&Y ensures that there is a clear separation between the two legal entities in France andBelgium: this means that they will ensure that no-one of the audit team has participated in theaudit of the accounts of IMG and that no one has access to the information related to thataudit. They also ask each member of the audit team to sign a written declaration confirmingtheir independence". Moreover as mentioned in the response to question 5(f), the conflict ofinterests’ issues are well covered in the Audit Framework Contract.

6. In reply to question 16a. the Commissioner replied IMG had also signed contractsunder direct centralised and decentralised management modes. The Commissionerfurther explained that as an international organisation, IMG was considered a non-profit body.

a. Which legal provisions foreseen in the Financial Regulation allow IMG to signcontracts (e.g. services, supplies) which by definition allow for profit?


Under grants and under joint management, the financing or co-financing of actions is done onthe basis of reimbursement of eligible costs and the non-profit rules prevail; this is why thetemplate for grant contract and for contribution agreements includes the non-profit rule.Under procurement the price of the services or the supplies is fixed following competitivetendering and allows for profit although this is not compulsory.

As an international organisation and on the basis of chapter IV “Finance” of its Statutes, IMGis a non-profit body. See Statutes of IMG at the following site:


Nothing in the Financial Regulation prevents a non-profit organisation to participate to callfor tenders and sign contracts to provide services or supplies. IMG can participate by setting aprice which does not foresee a profit. Eventual positive financial results on certain actions willbe compensated by losses on other actions. In the annual financial statements the net result(positive or negative) of the financial year is brought forward to the next financial year.

Excluding entities from tendering for the simple fact that they are non-profit organisationscould be regarded as discriminatory and hence contrary to the Financial Regulation and to thegeneral principles of procurement. Several NGOs and other international organisations, whichare also non-profit bodies, participate in our call for tenders.

b. Were there any specific contractual clauses inserted so as to eliminate profitmaking under those contracts? Please provide a copy of all those contracts?

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No specific clause has been inserted in these contracts - see reply to question 6(a); hencecontracts with such special clauses do not exist.

7. In reply to question 16a. the Commissioner replied that as a result of the competitiveparticipation of IMG in framework contracts, calls for proposals and call for tenders,EuropeAid had attributed 18 contracts to IMG.

a. Had other EC/EU services attributed contracts to IMG?


Yes. In addition to EuropeAid, DG Enlargement and the FPI also have concluded contractswith IMG.

b. If yes, which and how many and for what value/purpose and for whichbeneficiary country?


Information from the contracts concluded by EuropeAid, DG Enlargement and FPI areincluded in the data provided in the reply to Question 16(a) of the initial WrittenQuestionnaire and in the reply to question 1 above.

8. In reply to question 16a. the Commissioner replied that concerning Palestine the use ofa negotiated procedure was justified by the crisis situation, which had beenrecognised by the Director General of EuropeAid (the most recent renewal of such adecision is dated 10 July 2013).

a. Could the Commission elaborate on the situation in other countries?


In order to facilitate implementation of actions in countries in crisis, and in accordance withthe existing EU rules and regulations, flexible procedures may be used in order to ensurerapid response in a crisis situation or in a context of fragility. The situation in such countriesin terms of, for instance, market conditions or the urgency of the needs, requires in most casesa rapid reaction by the Commission to respond effectively to these situations, and for thisreasons the Financial Regulation has established the possibility to use flexible proceduresinstead of tender, which involves long procurement times.

These flexible procedures are established in Article 168(2) of the Implementing Regulation ofthe Financial Regulation of the Budget (as of 1/1/2013, Article 190.2 of the Rules of

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Application of the new Financial Regulation). The applicable rules are also stipulated inArticles 72 and 73 of the Cotonou Agreement for ACP countries. The relevant guidelines forimplementation of the applicable rules are published in the DEVCO Companion and in thePRAG which explains the contracting procedures applying to all EU external aid contractsfinanced from the EU general budget and the EDF.

The relevant authority to declare a crisis situation is the authorising officer by delegation (=Director General), who will issue a decision in this regard on the basis of appropriateconsultations which the relevant services and the responsible Commissioner. The authorisingofficer by delegation may decide, in light of the politically sensitive nature of a case, to raisethis question to the College.

Likewise, the authorising officer by delegation shall consult the relevant Commission'sservices dealing with external relations concerned by the decision. He/she may decide toconsult or inform other Commission's services (e.g. line DGs). EEAS and any other EUinstitution may be informed, as well as, where appropriate, any other relevant EU partnerpresent in the country or region (i.e. International Organisations, other donors…)

Each "crisis declaration" is subject to a thorough review at least once per year by EuropeAidand as a result may be either extended or terminated by senior management decisionaccording to the evolution of the prevailing conditions.

Furthermore, the actual application of flexible procedures is subject to ex ante approval on acase-by-case basis by management at the appropriate (AOSD) level. The concerned authoringofficer may decide to use these flexible procedures in the country declared to be in crisis inlight of the situation in this country and of the specific envisaged contract, such as the lack ofa normal functioning competitive market (with e.g. few companies active in the field), theurgency of the needs, etc.

From mid-2012 to mid-2013 there were 38 countries declared to be in crisis, most of themlocated in Sub-Saharan Africa (22). However, this has been reduced to around 30 countriesfor the period up to 30 June 2014. Concerning the eligibility for using flexible procedures: inJuly 2013, 27 countries were extended to June 30 2014; one was extended for 6 months only;6 had their crisis status terminated and 3 had already been extended to June 2014. Only onecountry was added (as a result the Syrian crisis).With regards to IMG, there are 26 negotiatedprocedures for the award of procurement contracts and 23 direct awards of grants inAzerbaijan, Bosnia and Herzegovina, Cyprus, Egypt, FYROM, Haiti, Iraq, Kosovo, Lebanon,Libya, Myanmar, Serbia, Tunisia and the West Bank and Gaza Strip. These were all based onthe cases for negotiated procedures/direct award provided for in the applicable rules of theFinancial Regulation and its Implementing Rules; in most cases the reasons was the crisissituation on the basis of Article 168(2) of the Implementing Rules.

b. Was this decision duly justified and recognised as correct by the ECA duringtheir 2012 performance audit in Palestine?

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Co-operation with the Palestinian Authority take place in very particular circumstances, in thecontext of Israeli occupation, with an Authority which does not have the powers of a stategovernment and where part of the Palestinian territory, the Gaza Strip, is run by de factoauthorities with which the EU has no relations.

The situation in Palestine moved from being an acute crisis, with large-scale military actiontaking place up to 2009, to a “frozen crisis” whereby none of the issues were resolved, but acertain day-to-day stability was established. This situation led the Commission to considerthat there was a greater space for competitive tendering procedures related to its co-operation.It would therefore be fair to say that while access to large areas of the West Bank directlyunder Israeli military control (Area C) and the Gaza Strip remained highly problematic, thephysical danger to personnel had diminished.

In its performance audit report of 2012 (paragraphs 36, 37 and 76), the Court of Auditors doesnot find irregular the use made of direct negotiated procedures with this internationalorganisation. However, even in the context of crisis in Palestine, it considered thatcompetitive tendering would have been feasible for contracts for management services andaudit. This point was identified by the Commission even before the visit of the Court. A needfor increased competition was taken into consideration for in the 2012 programmingdocument and measures were taken in this regard, as explained in the reply to question 16(b)of the initial Written Questionnaire: “The Commission is aware that the continuous use of thesame international organisation as a contractor may be considered as putting EUREP in aposition of increasing dependency on the international organisation over time. This risk isalready being tackled through a change in the procedure for the provision of the servicescurrently contracted to IMG, for which an international call for tender is being launched.”

9. In reply to question 16a. the Commissioner replied that the declaration of a crisissituation allowed for the use of flexible procedures where appropriate. He furthermorereplied that Technical Assistance to the Palestinian Authority (PA) and technical (IT)supported to the PEGASE system (provided mainly by IMG) were very crucial andcritical tasks, the interruption of which could put the PA and the support to the PA bythe EU at serious risk. In this case, why have no such payments taken place sinceSeptember 2013?


At the start of each year, there is a specific planning agreed with the Palestinian Authority onthe payment schedule taking into account forecasts of payments of other donors. In most ofpast years, the Union paid more at the beginning of the year because the EU funds wereavailable earlier than those from other donors. As a consequence, it is possible that for some

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months there is no contribution from the EU. This means that there has not been anyinterruption in the continuity of the EU payments.

In addition, 2013 was a particular year because of the change of auditors followingcompetitive tendering and the change of the IT tool used for the check against internationalsanctions and other ad hoc lists (also following competitive tendering). Nevertheless, twotransfers to the PA were processed end 2013: The November 2013 Civil Servant and Pensionpayments and the December 2013 Vulnerable Palestinian Families payments. The PEGASEmechanisms remain operational.

10. In reply to question 16a. the Commissioner replied that VAT exemption wasdetermined on a country-by-country basis in the Financing agreements. He furtherexplained that it was not an ad-hoc decision for a concrete organisation but dependedon the applicable legislation in the Beneficiary country, and on particular agreementsbetween the EU and the relevant country. The Commissioner concluded that IMG, asfor any other entity VAT might therefore be funded by the EU if it were paid andcould not be recovered.

a. According to the letter c. Paragraph (3) Article 126 of the Financial RegulationVAT expenditure of a beneficiary is eligible “where it is not recoverable underthe applicable national VAT legislation and is paid by a beneficiary other thana non-taxable person […]”. How does the Commission keep track ofarrangements regarding VAT exemption between IMG and the countries whereIMG implements contracts under EU financial aid? In which countries is theIMG VAT exempted?


According to the information available to the Commission, Bosnia-Herzegovina, FYROM,Kosovo, Lebanon, Myanmar, the Palestinian Authority, Azerbaijan and Serbia have grantedtax/VAT exemption to IMG, where it operates. In Tunisia, the contract with IMG concerned alump sum contract, so the issue of tax exemption was irrelevant, and, for Egypt, the sales taxexemption was not granted by the local authorities, the contract was further terminated and notax was accepted as eligible costs. Therefore, to the best of our knowledge, no VAT costswere considered as eligible by the Commission with regards to IMG.

In principle, VAT is not an eligible cost. If VAT is claimed in an invoice, then we askinformation about it. It would be considered as an ineligible cost unless, the contractor maynot recover it. Note that, based on the existing legislation, the DEVCO Companion has caseswhere some tax costs may be accepted..

b. How does the Commission ensure that IMG is not VAT exempted in othercountries?

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VAT Exemption is carefully checked at country by country level. So far, no situation ofVAT/Sales tax exemption requested additional investigation.

c. Does Palestine or Israel recognise IMG as an International Organisation?


The Palestine Authority has granted IMG the status of international organisation. The statusand privileges granted to IMG by the Palestinian Authorities is provided to the Parliamentaccording to the provision laid down in the Framework Agreement (Annex II Forwarding ofconfidential information to Parliament)

Israel has not explicitly recognised IMG as an International Organisation.

d. What are the current financial implications of IMG’s eligible VAT to the EUbudget ensuing from contracts signed with IMG?


When following the checks explained in the answer to question 10(a), it is found that the VATcannot be recovered in a country outside the EU, it may be considered as eligible and in thatcase paid by the EU Budget.

e. Does Palestine or Israel recognise IMG as an International Organisation?


The Palestinian Authority has granted IMG the status of international organisation. The statusand privileges granted to IMG by the Palestine Authorities is provided to the Parliamentaccording to the provision laid down in the Framework Agreement (Annex II Forwarding ofconfidential information to Parliament).

Israel has not explicitly recognised IMG as an International Organisation.

11. In reply to question 16b. the following questions have not been answered:

a. Is the IMG excessive/almost exclusive dependency on EU funding dulyexamined by the EU services to avoid any distortion or monopoly issues?


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IMG is not almost exclusively dependent on funding from the EU, as explained in the reply toquestion 1(a) above. According to this organisation, the EU funding provided by the EuropeanCommission would represent around 50% of the IMG’s portfolio of projects during the lastthree years. Countries such as United Kingdom, Sweden, Italy, Spain, Croatia, United States,Norway or Switzerland also work or have worked with IMG. EU Member States wouldrepresent around 20-25% and non EU-States less than 20% in the 2010-2013 period.

With regards to the issue of the possible dependency on the EU towards IMG, the evolution ofthe situation in Palestine has reduced such possible risk. The situation in Palestine movedfrom being an acute crisis, with large-scale military action taking place up to 2009 (situationwhere IMG’s expertise is very important), to a “frozen crisis” whereby none of the issueswere resolved, but a certain day-to-day stability was established.

In 2012, the Ad Hoc Liaison Committee took note of reports from the IMF and World Bankthat Palestine had reached the minimum level of capacity in state-building. Despite thedifficulties encountered, the Commission and EEAS have intended since the foundation of thePEGASE Mechanism in 2008, to gradually change the emphasis on supporting the PalestinianAuthority from direct financial support to institution-building and economic development.

The EU cooperation approach and portfolio is progressively evolving from 'capitalinvestments and infrastructures' where IMG specific engineering and technical experiencewas a crucial added-value, to a 'Policy Reforms' approach (this evolution started in 2012 andhas been confirmed in the draft Single Support Framework 2014-2015 (ENI ProgrammingDocument) – where other Technical Assistance companies could also provide the expertiseneeded.

b. Were the EU officials appointed as Head of F&C in the Palestine delegationduring these last 10 years are moved away abruptly? If yes, what were thereasons for that?


With one exception, all Head of Finance and Contracts in the Palestine delegation havecomplied with the normal period or rotation, which is between two and three years in“difficult countries”. As mentioned in the reply to question 16(b) of the initial WrittenQuestionnaire: “the Head of Finance, Contract, and Audit Section (FCA) in EUREP, who wasappointed in February 2012, was reintegrated back to HQ in January 2013 in accordancewith the relevant rules on reintegration of officials to HQ. This was an internal organisationmeasure taken in the interest of the service in order to improve the functioning of the contract,finance and audit section of the Delegation, which has nothing to do with the relations of theCommission with IMG.”

job holdername

from until Comment Reason

18

job holdername


1 01/07/2013Current jobholder

N/A

2 16/02/2012 31/12/2012

End ofterm in theinterest ofthe Service

will be providedaccording to theprovision laid down inthe FrameworkAgreement (Annex IIForwarding ofconfidentialinformation toParliament)

3 01/11/2007 31/08/2011Normalperiod

No early rotation wasrequested

4 17/01/2005 31/08/2006Normalperiod

the jobholder have leftbefore the normalmandate as he reachedthe maximum durationof posting in the samedelegation (as he waspreviously posted onanother post in thesame section since2002)

5 17/12/2002 30/12/2004Normalperiod

Normal early Rotation3 > 2 years

Additional information on the reasons for the reintegration in Headquarters of this official willbe provided according to the provision laid down in the Framework Agreement (Annex IIForwarding of confidential information to Parliament).

12. In reply to question 16b. the Commissioner replied that the experience IMG hadgained in providing support to institutional and capacity building activities in middle-income and developing countries, as well as the significant expertise it could callupon, had given the organisation a set of skills which it - on occasions – was alsocalled upon to apply also in specific (post-)crisis/(post-)conflict areas such as inPalestine.

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a. What are the elements supporting this affirmation?


IMG has built up its experience and reputation as regards implementing or supervising,among others, capital investments and infrastructures in post crisis/post conflict situations.This organisation has been used since 1994 by several donors, including EU Member States,as mentioned in the reply to question 1(a), in the field of institutional and capacity building,

This know-how is considered particularly important in the context of a country like Palestinewhich is under occupation and therefore it is considered an area of conflict and as crisissituation by the Commission. In line with the EU objective to support the set-up of thePalestinian State and the Palestinian Authority development strategy since 2005 to set up thecore of the Palestinian State, the EU cooperation has supported since years capitalinvestments and infrastructures in a series of key sectors such as Rule of Law and water andsanitation (Muqatas, Courthouses, small and medium size water, waste water and solid wasteplants). The engineering experience of IMG as well the necessity to ensure continuity ofsupport to the PA over time as well as transparent monitoring of implementation for the EU ina partially decentralised management mode has been considered important added values ofIMG by both the PA and the EU.

b. How did IMG demonstrate this kind of experience prior to 2002, when theygot engaged in EU financed contracts?


IMG operates in Bosnia and Herzegovina as an independent organisation since 1994, in thefield of infrastructure (including energy and public utilities) and of shelter/housing in Bosniaand Herzegovina.

The Commission have concluded 26 contracts with this organisation between 1995 and 2001in the areas of rehabilitation, reconstruction, capacity building, etc. in Bosnia andHerzegovina since 1995 and in Kosovo, Serbia and FYROM in 2000/2001.

Other donors recognise the expertise of IMG in the area of supporting institutional andcapacity building activities. Donor countries such as Norway, Sweden, Switzerland or Spainwork with IMG in this area in Serbia, Kosovo, Palestine, etc. For instance, IMG manages orhas managed four projects in Palestine financed by Spain since 2009.

c. Was their mandate before 2002 and upon creation focused on such activities?


20

As mentioned in the previous answer to question 12(b), the first mandate is reflected inArticle 1 of their 1994 statute and focused on the field of infrastructure and of shelter/housingin Bosnia and Herzegovina.

This mandate has expanded through the successive amendment of Article 1 of IMG Statute tocover infrastructure and “all projects based on reconstruction and development”, with nogeographical limitation.

The statutes are available at:

http://www.img-int.org/Central/Public08/Documents.aspx.

d. Could you provide with the documentation establishing IMG’s mandate tooperate outside Bosnia-Herzegovina?


The mandate is no longer limited to Bosnia and Herzegovina. This mandate has beensuccessively expanded through the successive amendment of Article 1 of IMG Statute tocover infrastructure and “all projects based on reconstruction and development”, with nogeographical limitation..

The information on IMG’s mandate and its evolution is reflected in the evolution of Article 1of the successive Statutes of IMG, available at the following web site:


21

.

13. In reply to question 16b. the Commissioner replied that in terms of project andfinancial management of EU-funded technical assistance projects, IMG hadconsistently demonstrated high level9s of project management competencies, highquality of technical expertise, and sufficient management capacity (including staff,equipment and ability to handle the budgets of financed actions – on many occasionsamounting to more than EUR 2 million).

a. Could you provide the Budgetary Control Committee with the relevantevaluation and monitoring reports since 2002 that support this affirmation?


The following documents will be provided according to the provision laid down in theFramework Agreement (Annex II Forwarding of confidential information to Parliament)

- Interim Evaluation Pegase, October 2009 (see in particular pages 11, 25, 64)

- Final Evaluation Pegase 2008-2011, July 2012 (see in particular pages 13, 20)

- ROM 2011 for IMG contract ENPI/2009/207-600 in Palestine

- Rapport d’évaluation pour le Programme européen d’appui au relèvement du systèmeHaïtien de gestion de risques et désastres (rapports final et à mi-parcours).

- Monitoring report technical assistance in favour of Lebanon in the framework of the supportto reconstruction and economic recovery.

.- ROM - Implementation of twinning, TAIEX and SIGMA operations (ITTSO) in AzerbaijanII.

b. Could you also provide the Budgetary Control Committee with the CVs of theexperts currently working under EU financed projects together with the Terms

22

of References or other documents establishing the European Commission’sneeds for the profiles of those experts?


The information on CVs from experts working under on-going service contracts is providedaccording to the provision laid down in the Framework Agreement (Annex II Forwarding ofconfidential information to Parliament).

Note that, under joint management and grant contracts, the choice of experts is carried out bythe delegatee/beneficiary; the Commission therefore does not deal with the CVs of experts.The Commission only intervene ex post, at the level of results.

14. In reply to question 16b. the Commissioner replied that the Commission did notconsider that IMG was irreplaceable. However, and overall, (i) its profoundexperience of EU bilateral programmes with the PA (PA), (ii) its vast experience withsimilar technical assistance to the PA, (iii) its networks with key PA decision makersand (iv) the high level of respect it received from the PA as well as the EU office inPalestine (EUREP), put IMG in a unique position to carry out critical technicalassistance tasks in Palestine.

a. What was the experience of IMG in PA matters before establishing TIM?


IMG were awarded four contracts prior to the establishment of TIM, between 2002 and 2004.These concerned a services contract for “Damage Assessment and ReconstructionManagement in the West Bank and Gaza Strip”, “Technical assistance and Monitoring ofReconstruction Projects in the West Bank and Gaza Strip”; “Monitoring of Projects” and“Technical Assistance action in favour of the PA for identification of urgent projects in theGaza Strip and the reinforced monitoring of ongoing projects”.

b. Was their contract under TIM a result of direct award/negotiated procedurewith single tender and, if yes, what was the justification for choosing IMG forsuch selection procedures?


The contract was awarded as the result of negotiated procedure, justified by the crisis situationin Palestine, which necessitated the establishment of the Temporary International Mechanism(TIM). This was done in accordance with Article 168(2) of the then Implementing Rules ofthe Financial Regulation.

23

15. In reply to question 16b. the Commissioner replied that the Commission did notconsider that there had been an excessive increase in the unit costs of the contracts,and was not aware of any instances of unlawful changes of experts under IMGcontracts. Furthermore, the Commissioner assured CONT that, all changes in keypersonnel were carried out in accordance with approved procedures under thecontracts concerned.

a. Could the Commission please provide a detailed list of all cases of expertreplacement under IMG contracts, including reasons, CVs of the replacementexperts and timing of the replacement in relation to the start-up date of thecontract?


CVs of experts is an important element for the Commission to decide the award of servicecontracts and these CVs are assessed in the evaluation of tenders. This is why theirreplacement is subject to strict rules.

The internal rules of EuropeAid (the so-called DEVCO Companion) provide the followingguidelines as regards the replacement of experts:

“The contractor shall, on its own initiative or at the request of the contracting authority,propose the replacement of agreed personnel in case of death, injury or illness of anypersonnel, or when it is necessary to replace a person for any other reason beyond the controlof the contractor, for example in case of resignation or when the contracting authorityconsiders that a member of staff is incompetent or not suitable for the performance of therelevant tasks under the contract.

These considerations of course only cover the agreed experts, but not the staff who must beprovided as a result of the contract (note that these will not be individually identified in thecontract). Indeed, for certain members of the staff who are not the agreed experts, the specialconditions do not indicate either the required qualifications or experience, but give a generaldescription of the tasks to be fulfilled, such as the tasks relating to the support structureprovided in the framework of the contract. When the contractor proposes to replace a memberof staff, the replacement must possess a level of qualification and experience which is at leastequivalent to that of the person to be replaced (therefore it may go beyond what was requiredby the terms of reference), and his/her remuneration may not go beyond that of the person tobe replaced. Where the contractor is not able to provide a replacement of equivalentqualifications and experience, the contracting authority may decide to terminate the contract,or to accept an alternative proposed replacement provided that they meet at least the criteriaindicated in the terms of reference, and on condition that the fees are negotiated downwards.

When the contractor requests the approval of the contracting authority for the proposedpersonnel, the contracting authority may not unreasonably delay its approval or objection. Ithas 30 days from the date on which the request for approval was introduced to approve orreject the replacement.

24

If the Contracting Authority is the European Commission, the beneficiary country must alsogive its agreement to the replacement of an expert. In this case, the beneficiary country has 15days to approve a replacement or to submit objections with justification.

The additional costs generated by the replacement of staff are normally the responsibility ofthe contractor. The fact that the contracting authority has given its agreement for thereplacement, or that it has ordered the replacement for reasons of incompetence orinadequacy, does not give the contracting authority responsibility for paying these costs(Article 17.4). In certain cases, these costs may be covered by the insurance which thecontractor must take out under the contract. This is the case for costs relating toarrangements which must be taken for deceased members of staff (Article 13.3.d) or wherestaff is in an industrial accident (Article 13.3.a).

When the replacement of an expert is necessary, the contractor must propose a replacementwithin 15 days, starting from the first day of absence of the person to be replaced. Otherwise,the contracting authority may impose liquidated damages of up to 10% of the fees due for theexpert.”

Below are the cases of replacements of experts in contracts with IMG.

There is one case in Azerbaijan: the key expert was replaced because he succeeded in a EUcompetition and entered into an institution.

There is also a replacement of a key expert in a services contract in Palestine (FPI) becausethe Security Guards (police) at the Rafah Border Crossing refused very often to let the initialkey expert enter Gaza. As per approval letter, EUREP assessed that the replacement expertmet the requirements as per ToR and therefore was at least equally qualified as compared tothe initial key expert.

For Bosnia and Herzegovina, there are cases of replacement of experts on 5 contracts

Two of these contracts were closed in 1999:

(a) Monitoring of the EC refugee return programme: the contract was signed on 20/07/1998and the first replacement was agreed on 23/07/1998 and the second on 31/5/1999. Thecontract was closed on 22/10/1999.

(b) Supervision of various transport projects: The contract was concluded on 25/11/1998 andthe replacement was agreed on 16/05/2000. The contract was closed in 28/11/1999.

The remaining three contracts were closed in 2004:

(c) Monitoring of the EC Refugees programme: The contract was concluded on 22/11/1999and the replacement was agreed on 4/03/2000. The contract was closed in 8/09/2004.

(d) Transfer of Task Forces responsabilities and capacities to BiH national bodies: Thecontract was concluded on 30/06/2000 and the replacement was agreed on 5/09/2000. Thecontract was closed in 15/07/2004.

and

25

(e) Transfer of Task Forces responsabilities and capacities and integration with the CapacityBuilding Programme: The contract was concluded on 19/02/2001 and the replacement wasagreed on 10/04/2001. The contract was closed in 14/07/2004.

The files for the aforementioned contracts in Bosnia and Herzegovina do not contain detailinformation on the reasons for the expert to leave the project. It has to be noted however thatthe contractual relations is only established between the Commission and the companyproviding the experts (IMG in this case); and the obligation of the company is to ensure theadequate and timely replacement of the expert.

The information on the replacement of key experts under service contracts, including theirCVs, will be provided according to the provision laid down in the Framework Agreement(Annex II Forwarding of confidential information to Parliament).

Note that, under joint management and grant contracts, the choice of experts is carried out bythe delegatee/beneficiary; the Commission therefore does not deal with the CVs of experts ortheir replacement. The Commission only intervene ex post, at the level of results.

b. Could the Commission also indicate the turn-over rate in this regard against theinitial number of experts employed in EU financed contracts signed with IMG?


Out of the seven contracts in the response to question a:

The turnover with regards to the Azerbaijan contract is 25%, as there were four key expertsunder this contract and only one was replaced.

For the Palestine contract the turnover is 50% as there were two key experts for this contract.

For the Bosnia and Herzegovina contracts, the turnover is as follows:

(a) Monitoring of the EC refugee return programme: 2 international experts out of 3 werereplaced, and 10 local experts out of 12 were replaced;

(b) Supervision of various transport projects: 1 expert out of 17 were replaced;

(c) Monitoring of the EC Refugees programme: 1 expert out of 15 experts was replaced;

(d) Transfer of Task Forces responsabilities and capacities to BiH national bodies: 1 expertout of 5 was replaced;

(e) Transfer of Task Forces responsabilities and capacities and integration with the CapacityBuilding Programme: 1 expert out of 24 was replaced.

c. Were there any cases where the European Commission has approved thereplacement of an expert with another that had a profile lower than the originalexpert and why?

26

Commission's answer : DEVCO

In the light of the information provided; there is only one contract where the new experts mayarguably have a lower profile than the initial one: the 1998 contract on Monitoring of the ECrefugee return programme in Bosnia and Herzegovina.

One of the initial experts holds Bsc. degree in Civil Engineering, while the replacing expert’s,CV does not clearly indicate which degree the replacing expert holds, but has “Profession:Mechanical Engineering” and holds various certificates/HNC/Eng Tech CEI AMIMechIE;The other initial expert holds MSc degree in Architecture, while the replacing expert holdsBSc in Civil Engineering.

However, the profile of the new experts is compliant with the Terms of Reference.

16. In reply to question 16b. the Commissioner replied that the Commission was awarethat the continuous use of the same international organisation as a contractor mighthave been considered as putting EUREP in a position of increasing dependency on theinternational organisation over time. Furthermore, the Commissioner assured CONTthat this risk was already being tackled through a change in the procedure for theprovision of the services currently contracted to IMG, for which an international callfor tender was being launched.

a. What has triggered this change?


The situation in Palestine moved from being an acute crisis, with large-scale military actiontaking place up to 2009, to a “frozen crisis” whereby a certain day-to-day stability wasestablished but none of the fundamental political issues were resolved. It was only in 2012that prospects for the resumption of peace talks improved significantly.

In September 2012, the Ad Hoc Liaison Committee took note of reports from the IMF andWorld Bank that Palestine had reached the minimum level of capacity in state-building.Despite the difficulties encountered, the Commission and EEAS have intended since thefoundation of the PEGASE Mechanism in 2008, to gradually change the emphasis onsupporting the Palestine Authority from direct financial support to institution-building andeconomic development.

The EU cooperation approach and portfolio is progressively evolving from 'capitalinvestments and infrastructures' where IMG specific engineering and technical experiencewas a crucial added-value (See also 12.a above), to a 'Policy Reforms' approach (thisevolution started in 2012 and has been confirmed in the draft Single Support Framework2014-2015 (ENI Programming Document) – where other Technical Assistance companiescould also provide the expertise needed.

b. Why only in 2013 and not earlier?

27


The situation in Palestine moved from being an acute crisis, with large-scale military actiontaking place up to 2009, to a “frozen crisis” whereby a certain day-to-day stability wasestablished but none of the fundamental political issues were resolved. It was only in 2012that prospects for the resumption of peace talks improved significantly. This was confirmedby the Ad Hoc Liaison Committee in September 2012, as mentioned in the reply to thequestion 16(a). .

This situation led the Commission, starting with the programming for 2012, to consider thatthere was a greater space for competitive tendering procedures related to its co-operation.This created room for reflection and adapt what was put in place in times of a more acutecrisis. An international call for tenders involves incompressible deadlines for replies andevaluation procedure, so that the result of this procedure could not be obtained before 2013.

c. Who assumes the responsibility for this delay?


The Commission considers that there has been no delay. As soon as the Commissionconsidered that there was a greater space for competitive tendering procedures related to itsco-operation in September 2012, as mentioned in the response to question 16(b) above, theDelegation proceeded with the adoption of the decisions allowing the launching ofinternational call for tenders, which is in itself a long procedure involving incompressibledeadlines for replies and evaluation procedure. Therefore there is no delay beyond the timerequired for the procedure to be implemented.

The contract Prior Information Notice was published in October 2013 and the Contract Noticein November 2013.

d. Was the matter duly and effectively supervised between 2002 and 2013? If yes,how?


The expertise of IMG in this period of crisis was highly relevant and necessary. On everyoccasion when recourse to IMG occurred, the derogation request reviewed the reasons andjustifications for such a direct award. This led to the decision in 2013 to have recourse to aninternational call for tenders.

17. In reply to question 16b. the Commissioner replied that was not responsible for thecontent of IMG’s website. However, if the website provides information concerningthe cooperation with the EU and the status of IMG in the eyes of the Commission and

28

its activities for the EU, would the European Commission not be concerned about thecontent?


The Commission has not noticed any material errors or inaccuracies in the IMG web.Nevertheless, in the event that such errors came to light, it goes without saying that we wouldask the organisation to remedy these forthwith.

18. In reply to question 16b. the Commissioner replied that the auditors had concludedthat its Accounting, Audit, Internal control and Procurement systems operated inaccordance with internationally accepted standards

a. Did they conclude so in 2010?


As mentioned in the reply to Question 5(b), the auditors concluded in 2010 as follows:

- Accounting standards

IMG applies accounting standards that generally comply with the benchmarks in place. Theexternal auditors noted that very limited efforts are needed to fully comply with thebenchmarks.

- Audit standards

IMG applies audit standards that comply with the benchmarks.

- Internal control standards –Part 1 : Internal control framework

IMG foresees an internal control system that generally complies with the normativeframework. Various comprehensive and detailed policies and procedures are in place as wellas an adequate level of segregation of duties. However some improvements are advised suchas a separate audit committee and a separate code of conduct.

- Internal control standards – Part 2 : Internal audit standards

IMG applies internal audit standards that generally comply with the benchmarks.

- Procurement standards (including ex-post publication of beneficiaries)

The procurement standards applied by IMG are very much equivalent to internationalaccepted standards as set out in the benchmarks.

The 2010 four-pillar assessment concluded that once a very limited effort on the accountingstandard is put in place (such as better disclosure of entity identification in financialstatements; add budgetary information to financial statements; add management report to thefinancial statements) and once some prerequisite guidelines for procurement, if any, arepublished, IMG would be fully compliant in line with the aforementioned recommendations.

29

These recommendations were duly addressed by IMG by the time the next assessment wasconducted (2012).

Since IMG does not work with Implementing Partners and does not grant funds, no rules andprocedures for implementing partners are foreseen. In case IMG would outsource themanagement or implementation of funds, specific accounting, auditing, internal control andprocurement guidelines should be available on beforehand in case IMG would start doing so.

b. If not, what was the implication for contracts signed with IMG between 2010and 2013?


As mentioned in the reply to questions 5(c) and (d), based on these conclusions, the concernedauthorizing officers may consider if the possible weaknesses covered by the recommendationsput forward by the auditors in their four-pillar report should affect the conclusion ofcontribution agreements under joint management. The follow up in 2012 confirmed that IMGtook all the necessary measures to fully comply with the required standards

19. In reply to question 16b. the Commissioner replied that five Heads of FCA section hadbeen appointed over the last ten years in this Delegation.

a. Has this rather high turn-over for the post of HoFCA in the EUREP beenexamined by the European Commission’s services, including IDOC?


As mentioned in the reply to question 11(b), the turnover is normal for countries consider“difficult”. In these countries, an early rotation of 2 years, is possible (cf. Article 10 of thedecision CE 7200/2012 "principles governing postings"), the standard period being 3 years.

With one exception, all Head of Finance and Contracts in the Palestine delegation havecomplied with the normal period or rotation, which is between two and three years in“difficult countries”. As mentioned in the reply to question 16(b) of the initial WrittenQuestionnaire: “the Head of Finance, Contract, and Audit Section (FCA) in EUREP, who wasappointed in February 2012, was reintegrated back to HQ in January 2013 in accordancewith the relevant rules on reintegration of officials to HQ. This was an internal organisationmeasure taken in the interest of the service in order to improve the functioning of the contract,finance and audit section of the Delegation, which has nothing to do with the relations of theCommission with IMG.” Additional information on the reasons for the reintegration inHeadquarters of this official will be provided according to the provision laid down in theFramework Agreement (Annex II Forwarding of confidential information to Parliament).

30

job holdername


1 01/07/2013Current jobholder

N/A

2 16/02/2012 31/12/2012

End ofterm in theinterest ofthe Service

will be providedaccording to theprovision laid down inthe FrameworkAgreement (Annex IIForwarding ofconfidentialinformation toParliament)

3 01/11/2007 31/08/2011Normalperiod

No early rotation wasrequested

4 17/01/2005 31/08/2006Normalperiod

the jobholder have leftbefore the normalmandate as he reachedthe maximum durationof posting in the samedelegation (as he waspreviously posted onanother post in thesame section since2002)

5 17/12/2002 30/12/2004Normalperiod

Normal early Rotation3 > 2 years

b. What were the reasons for the others that also left before the normal expirydate of their mandate?


All the Heads of FCA leaving their post during the last ten years did so in accordance to thenormal rotation period rules and procedures foreseen in the Commission Decision CE7200/2012 (Article 10). There is only one exception to this normal rotation period, due to theinterest of the service, as mentioned in the reply to question 11(b)19(a) above..

More detailed information will be provided according to the provision laid down in theFramework Agreement (Annex II Forwarding of confidential information to Parliament).

31

20. In reply to question 16c. the Commissioner replied that IMG contracts were regularlyaudited by external auditors and furthermore, that different audits of IMG had recentlybeen finalised (164277 – West Bank & Gaza and 252490 - Haiti), just launched(264701- West Bank & Gaza), or planned (291247 – Egypt). Could the Commissionprovide the Budgetary Control Committee with copies of the finalised audit reports todate?


The finalised audit reports concerning West Bank & Gaza and Haiti are provided accordingto the provision laid down in the Framework Agreement (Annex II Forwarding of confidentialinformation to Parliament).

Note that IMG is subject to an external verification pursuant to Article 17 of IMG Statutes. Asmentioned in question 5(g), the external auditor of IMG is Ernst & Young France.

21. In reply to question 16c. the Commissioner replied that the financial statements ofIMG were also audited by IMG’s external audit firm Ernst & Young et Associés,Paris, France. Moreover, the Commissioner replied that this audit firm was registeredwith the Compagnie Nationale des Commissaires aux Comptes (the National body ofFrench Chartered Accountants) and the latter was a member of the InternationalFederation of Accountants (IFAC).

a. If IMG is an International Organisation, why did the European Commissionafter so many years of cooperation with the EC not perform a verificationmission to IMG Headquarters to establish reliability of all IMG related issues,especially in the light of recurrent OLAF investigations on IMG activities since2006?


The pillars assessment procedure was established for the first time in 2007. As mentioned inthe reply to question 5(a), a pillar assessment is launched by the Commission only when thereis a need to sign contribution agreements in joint management. Regarding IMG, this requestwas put in December 2008 in the annual audit plan for 2009, and the verification wasfinalized in 2010.

The Commission can launch verification missions on specific projects but not on all IMGrelated issues. Projects to be verified are decided in the Annual audit plan, based on a riskassessment. Two projects have been included in the AAP 2011 and 2012 for Palestine.

As far as the Commission services are aware, there are no recurrent OLAF investigations onIMG activities since 2006. In 2006 and in 2008 OLAF carried out two investigationsconcerning IMG. They concerned allegations of embezzlement in an EU funded road

32

rehabilitation project in Palestine, and irregularities in the implementation of EC fundedprojects in Iraq. Both investigations were closed as non-cases since the allegations could notbe substantiated.

b. Was the four pillar assessment a result of a full audit procedure or was itsimply based on written exchange of information based on a questionnaire?


The pillar assessment was a full verification performed by an external auditor, Ernst & YoungBelgium, in IMG’s HQ in Belgrade. They were contracted following the procedure providedfor under the 2006 Audit Framework Contract (AFC), as mentioned in the reply to question5(g).

The reports are provided to the Parliament according to the provision laid down in theFramework Agreement (Annex II Forwarding of confidential information to Parliament).

c. Did the company entrusted with the four pillar assessment ever visit the IMGHQ premises?


The auditor visited IMG HQ in Belgrade in the framework of the four pillar assessment.

d. Why was there no need for a four pillar assessment of IMG between 2005 and2010, i.e. before approving direct awards/negotiated procedures to the allegedInternational Organisation?


Pillar assessments are launched when the programming documents, in particular AnnualAction Programmes, foresees the possibility to use the joint management mode. If no contractis supposed to be signed under the joint management mode, no pillar assessment is required.

22. In reply to question 17. the following underlined questions have not been answered:

a. Does the Palestine delegation have in place an antifraud and anticorruptionpolicy/mechanism as foreseen by the EC relevant rules and guidelines and howis this implemented or reported to HQ and other EU control actors?


33

EUREP fully implements and enforces Internal Control Standards which cover antifraud andanticorruption mechanisms. This is reported both in the yearly Management Plan exercise aswell as in the section of the EAMR foreseen to that end. In addition, with regard tocontracting procedures for EU external actions, EUREP fully follows EuropeAid’s PracticalGuide on contractual procedures (PRAG) provisions e.g. asking all members of an evaluationcommittee for a given tender or calls for proposal procedure to sign a declaration ofimpartiality and confidentiality.

b. As the controls are outsourced, is the EC monitoring and supervisionmechanism adequately implemented so as to minimise risks to financial lossand reputation damage? Is the cost of these outsourced controls reasonable andjustifiable? What are the costs for these outsourced controls?


Any assessment whether the costs for outsourced controls are reasonable and justifiableshould be put in the appropriate context. Regarding TIM and PEGASE, since 2007, a total ofMEUR7.5 was spent on contracts for out-sourced ex-ante and ex-post controls to process andchecks payments for over billion EUR 1.5 i.e. around 0.5%.

In view of this "cost/benefit" ratio, the Commission deems the cost for the outsourced controlsto be reasonable, particularly in view of the need to ensure maximum security of payments inthe sensitive political context of Palestine. The recent ECA Performance Audit Reportconfirmed this view, as it has not identified any shortcomings with the legality or regularity ofEU funding to IMG in Palestine (except for a minor non-material compliance issue in 2012 ofabout EUR 1600)

23. In annotation to the introduction to question 17. the Commissioner writes about somefindings of the Court of Auditors concerning the legality and regularity of EU fundingin Palestine in its Annual or Performance Reports.

a. What is the relevance in regard to the information given in the introduction toquestion 17.?


The relevance is that the Court concluded that the Commission and EEAS have succeeded inimplementing this support in spite of difficult circumstances and that there is no evidence ofcorruption or mismanagement.

34

b. Could the Commission further elaborate on all identified elements of potentialcollusion and conflict of interest issues during the visit of Court’s staff in 2012identified by the staff of the Court of Auditors?


The Court of Auditors’ report does not identify elements of potential collusion and conflict ofinterest issues. The Commission has not been notified of any elements of potential collusionand conflict of interest issues by the Court of Auditors.

24. In reply to question 17a. the Commissioner replied that the DG had a procedure inplace – including updates and yearly reminders – to ensure that all staff were aware.Furthermore, the Commissioner explained that the staff regulations includedprovisions on the obligations of officials who in the course of, or in connection with,the performance of their duties came across “serious irregularities”. He also hinted tothe document “Serious irregularities – procedures to be followed” which gaveinformation on how to proceed.

a. Were any such serious irregularities reported by EC staff related to IMG from2002 to 2013?


In October 2012 an official previously employed in EUREP had raised with Europeaidheadquarters issues related to IMG, i.e. its status as an International Organization, issuesrelated to their effective visa facilitation from the Israeli authorities and the marital relation oflocal agents working in EUREP with IMG staff. As a follow up, Headquarters providedconfirmation concerning the status of IMG, suggested that protocolary issues should beaddressed to relevant EEAS services and instructed the concerned person to reportimmediately any allegation or slightest suspicion against EUREP staff so that OLAF andEuropeaid are informed. Therefore, in this case Headquarters considered that the issues raisedwere duly addressed.

In October 2013, the Commission received a letter addressed to President Barroso, HR/VPAshton, Commissioners Piebalgs and Fule, from a lawyer of the above mentioned official.The letter claimed that the official had informed his hierarchy of possible irregularitiesconcerning IMG. According to this letter, these irregularities were allegedly discovered by theCourt of Auditors in their audit of the PEGASE DFS programme and during the DAS 2012.His hierarchical superior, the Head of Delegation, confirmed that such suspicions ofirregularities were not communicated to him. Furthermore neither the “Special report of theCourt of Auditors on Palestine” nor the “Audit in respect of the Statement of Assurance(DAS) 2012 – External Aid – Specific assessment on the West Bank and Gaza Strip” containany reference to possible irregularities, fraud or corruption.

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For the sake of completeness, there are two closed OLAF cases concerning IMG where fraudallegations were made: Palestine (OF/2006/0234) and Iraq (OF/2008/0020 OLAF). OLAF didnot make any recommendations. However, in the Iraq case, OLAF mentioned that “theallegations related to the legality of the recognition of IMG as “international organisation” byEuropeAid, in order to benefit from consequent “facilitated” procedure to obtain EU funds,might have some merits but they are considered to be outside the competence of OLAF. As afollow up, in 2008, EuropeAid re-assessed the legal nature of IMG and reached the sameconclusion than in 2004: this entity could be regarded as an international organization in thesense of Article 43 of the Implementing Rules of the Financial Regulation.

The above is without prejudice to OLAF competences. In this regard, it should be recalledthat OLAF is independent in investigative matters and no comment should be made on theinvolvement of a person or body in on-going investigations.

b. If yes, how did EuropeAid act?


The response to this question is provided in the reply to question 24(a). .

c. What kind of follow-up was put in place?


The response to this question is provided in the reply to question 24(a).

25. In reply to question 17a. the Commissioner replied that the aid delivery methodsintroduced since 2006 (TIM and PEGASE) and the development policies adopted inthe EU co-operation with Palestine were fully in line with the proposals OLAF madein 2005 to improve the transparency in the use of funds, the control over the revenuesand expenditures of the Palestinian Authority and the improvement of its internalauditing system. Could the Commission please provide a detailed answer on howexactly the five recommendations issued by OLAF in 2005 were put in place by theEuropean Commission?


The OLAF's Final Case Report on Budget Assistance to Palestine stated that there was noconclusive evidence of the support of armed attacks or unlawful activities financed by theEuropean Commission Financial contributions to the Palestinian Authority budget.

OLAF, however, expressed some general recommendations – without requesting concretemeasures – on the improvement of the control of the revenues and the expenditures of thePalestinian Authority’s budget through a single system of monitoring. In addition OLAFmade some general comments on the importance of the governance sector and recommended

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that the on-going EU support to improve controls and internal audit with the PalestinianAuthority should be continued and reinforced.

Since the investigation conducted by OLAF and the dispatch of the summary report, thepolitical and economic situation in Palestine considerably changed, as well as the mechanismof aid delivery to the Palestinian population.

The Temporary International Mechanism (TIM) was launched on 26 June 2006 until it wasphased out on 31 March 2008. TIM was adopted in response to the formation of the Hamas-led government in early 2006.

As a consequence to the victory of Hamas, Israel took the decision to withhold PalestinianAuthority (PA) clearance revenues of up to $ 60 million per month – which accounted for twothirds of PA fiscal revenues – and also implemented a tighter closure policy affectingmovement and access of people and goods to and from Gaza, as well as within the WestBank. Hence, from March 2006, the PA government was unable to pay salaries to PAemployees, including those in the health and education sectors. Furthermore the Hamas ledgovernment failed to meet the Quartet principles, namely the recognition of Israel, therepudiation of violence, and the acceptance of international agreements. The EU had thus nocontacts with Hamas, even after it took control over the Gaza Strip in June 2007, but managedto provide assistance to its population through UNRWA and through the new aid deliverymechanism.

The TIM mechanism was therefore set up, in June 2006, with the aim of supporting directlythe Palestine population suffering from the consequent socio-economic and humanitariancrisis.

TIM had 3 “Windows”:

• Window I: Emergency Services Support Programme (ESSP) ensured the provision ofessential supplies and other recurrent costs in the areas of health, education, social services,electricity, water and sanitation. Funding was delivered through a World Bank Trust Fund towhich donors, including the European Commission and EU Member States, contributed.

• Window II: Interim Emergency Relief Contribution (IERC), entirely funded by theEuropean Commission, aimed at ensuring the continued provision of essential public utilitiesto the Palestinian population, such as electricity, via the provision of fuel.

• Window III: Social Allowances were provided to public service providers andvulnerable Palestinians in the occupied Palestinian territory. This window was funded by theEuropean Commission, EU Member States and other donors. In the case of social allowancepayments made directly to Palestinian beneficiaries, audit and verifications were applied to allbeneficiaries who were checked against established international sanctions lists.

On 1 February 2008 PEGASE was launched to replace TIM, which was renewed every threemonths, with the aim of shifting from emergency assistance to a sustainable Palestiniandevelopment process, building also on the three year Palestinian Reform and DevelopmentPlan (PRDP) and later on the Palestine National Plan (PNP – 2010-2013).

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Like the TIM mechanism, PEGASE is also based on a comprehensive and secure monitoring,verification and control system, to provide reassurance over the use of donor funds, and theefficient and effective provision of support to the Palestinian administration and beneficiaries.All individual beneficiaries are uniformly checked against international sanctions lists. Themain difference is that PEGASE is designed to work with and through the PA’s structurerather than around it, as was the case with TIM.

PEGASE provides financial and technical assistance in four key areas: Governance, SocialDevelopment, Economic and Private Sector Development; and Public Infrastructure.

The PEGASE system, thanks to its reliability, is being used by several Member Stateswanting to deliver support to the Palestinian Authority. EU contributions are pooled inspecific sub-accounts for each component of the Single Treasury Account, which are separatefrom those where PA funds are kept.

Each disbursement of PEGASE is explicitly authorized by the Commission’s headquartersfollowing an ex-ante audit.

This responds also to the OLAF comment stating that all donor funds flew into a SingleTreasury Account, and thus it was impossible to track the use made of any of EUcontribution.

With the introduction first of TIM and then of the PEGASE mechanism this issue has beentackled, and it is now possible to track EU funds up to the final beneficiaries.

Furthermore, according to the external evaluation on the PEGASE mechanism carried out in2012 “the quality control of inputs exercised by EUREP/DFS and its partners, PriceWaterhouse Coopers (PWC), Ernst & Young (E&Y), and the International ManagementGroup (IMG), throughout the PEGASE Direct Financial Support programme is of anextremely high efficiency and quality. Eligibility of claims and applicants is verified, deliveryof materials is quality controlled, and payments are made directly to the intended beneficiaryand are verified ex-post.”

In OLAF’s view, if the Commission was to grant again non-targeted budget support to thePalestinian Authority, this should be bound to clear and well-monitored conditionality.However, direct budget assistance was ended in 2003 and EU support to the PA was thenchannelled through Direct Financial Support first through TIM and then through PEGASE.

OLAF recommended as a conditionality, a further strengthening of the Internal AuditDepartment; the Internal control Department and the General Control Institute of the PA. Inthis respect the EU has continued its support through a specific project “Technical Assistance-Phase II- (following a Phase I in 2003/2004) to reinforce PA Internal Audit and InternalControl Departments”: the objective of the project was to provide support for the measuresbeing taken by the PA to strengthen its public financial management system and to enhanceeffectiveness and efficiency of the Palestinian National Authorities agencies and Ministriesthrough Internal Control and Internal Audit Departments brought up to best practice based oninternational standards.

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According to the ex-post evaluation of this project and particularly the assessment of theindividual thematic areas, among the main achievements of the project were the following:

- the Internal Audit Department’s new Manual and Risk Assessment Model Report upgradedthe theoretical concept of the existing Internal Audit framework and its capability on reportwriting;

- the Internal Audit Department capacity to perform was enhanced;

- the Internal Control Department’s capacity to perform revenue sources and payroll controlswas strengthened.

In addition, the mentioned evaluation considers that the Office of the European UnionRepresentative not only kept playing an increasingly important role among the members ofthe International Community in supporting the Public Financial Management reforms butresponded extremely well during the difficult phases of the Programme development.

Another conditionality to be introduced according to OLAF, concerned improvement ingovernance, particularly the Justice and Home Affairs sectors.

The “Rule of Law” sector (including justice, security, support for the running of elections andgovernance) was addressed to not only through PEGASE, but also through the developmentprogrammes the EU is carrying out with Palestine, being one of the 3 focal sectors on whichthe co-operation is based on.

To conclude, the aid delivery methods introduced since 2006 and the development policiesadopted in the EU co-operation with Palestine are fully in line with the proposals OLAF hasmade to improve the transparency in the use of funds, the control over the revenues andexpenditures of the Palestinian Authority and the improvement of its internal auditing system.

26. In reply to question 17b. the Commissioner replied that following a specific requestfrom EUREP, all agreements with IMG had been subject to additional requirements(exceptions to the General Conditions applying to international organisations)particularly in relation to additional reporting requirements, auditing, and the transferof equipment (this last point had been applied in order to make sure that the PEGASEmechanism (incl. the database and the servers) was fully under EU control). When wasthis specific request formulated?


Such specific requirements were already included since 2003, e.g. in an Agreement concludedin January 2003 (MED/2003/56379).

27. In reply to question 17b. the Commissioner replied that the services provided asTechnical Assistance to the PA would be subject to an international tender (contract

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prior information notice published on 22 October 2013 – the contract notice isexpected by the end of November).

a. Why this decision is taken only in 2013 and not earlier?


As mentioned in the reply to question 16, the situation in Palestine moved from being an acutecrisis, with large-scale military action taking place up to 2009, to a “frozen crisis” wherebynone of the issues were resolved, but a certain day-to-day stability was established. Thissituation led the Commission to consider that there was a greater space for competitivetendering procedures related to its co-operation. Nevertheless, an international call fortenders involves incompressible deadlines for replies and evaluation procedure, so that theresult of this could not be obtained in 2013.

b. Were such issues duly supervised in the past to allow EC to act upon withoutsuch a big delay?


As soon as the Commission considered that there was a greater space for competitivetendering procedures related to its co-operation, the delegation proceeded with the launch ofinternational call for tenders, which is in itself a long procedure involving incompressibledeadlines for replies and evaluation procedure. Therefore there is no delay beyond the timerequired for the procedure to be implemented.

28. In reply to question 17c. the Commissioner replied that there is a first layer of controlwhereby Ernst and Young auditors verified by default IMG experts' assessment for alltransactions above a certain threshold, as well as for other transactions on a samplebasis (e.g. review of supporting documents, consistency checks of IMG experts'technical assessment, etc.).

a. Does this statement imply that either IMG and/or Ernst & Young expertsvisited Gaza for on the spot controls?


Indeed, IMG experts (engineers) and Ernst & Young experts (auditors) have conducted visitsto Gaza in order to carry out the necessary on-the-spot-checks as per the requirements of thePSRG (Private Sector Reconstruction Programme in Gaza).

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b. Do the contracts signed between the Commission and IMG or Ernst & Youngand/or other related contractual arrangements (e.g. agreed upon proceduresetc.) require such field visits and controls?


Yes. For instance, as for the contract with Ernst & Young, chapters 2.2, 2.3, 4.1.2, 4.2 and 6.5of the ToR require or foresee this kind of missions to Gaza.

In addition, the Agreed Upon Procedures (concluded between EUREP, IMG and Ernst &Young) as well as the Implementing Modality (concluded between EUREP and PA) requirethat reports by IMG and Ernst & Young are submitted regarding their field visits so thateligibility of expenditure can be assessed under PSRG.

c. Could the Commission report in detail on this element?


For instance, as for the contract with Ernst & Young, chapters 2.2, 2.3, 4.1.2, 4.2 and 6.5 ofthe ToR require or foresee this kind of missions to Gaza.

In addition, the Agreed Upon Procedures (concluded between EUREP, IMG and Ernst &Young) as well as the Implementing Modality (concluded between EUREP and PA) requirethat reports by IMG and Ernst & Young are submitted regarding their field visits so thateligibility of expenditure can be assessed under PSRG.

d. If not, are the costs of those experts adjusted to deduct the estimated value ofthe daily allowance/reimbursement of experts employed under those contractsas they do not make filed visits in Gaza?


The Agreed Upon Procedures (concluded between EUREP, IMG and Ernst & Young) as wellas the Implementing Modality (concluded between EUREP and PA) require that reports byIMG and Ernst & Young are submitted regarding their field visits so that eligibility ofexpenditure can be assessed under PSRG.

29. In reply to question 17c. the Commissioner replied that as a third layer, EUREP staff–in particular at the start of the programme in 2010 and 2011 – carried out field visits inGaza (when access to EU staff was not blocked) to review on a random basis activitiesimplemented by beneficiaries of the programmes.

a. Could the Commission provide the full reports following those visits,irrespectively of the nature of the visits or their purposes?

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EUREP staff does not produce written report of these missions, since the PEAGASE bulletinissued initially weekly and now monthly, covers the subjects. The bulletins for 2010 and 2011are provided according to the provision laid down in the Framework Agreement (Annex IIForwarding of confidential information to Parliament)

b. What is the role of Europeaid HQ in these controls?


In addition to the first and second layer controls by E&Y, IMG and EUREP staff, EuropeAidHQ carries out a further verification of the correctness of the relevant payment request inaccordance with the established financial circuits, based on the ex-ante audit of the proposedpayments and the ex-post audit of the previous payments. The transfer of funds to the PASTA-sub account is then authorised at Director level.

c. Is PEGASE DFS devolved?


Strictly speaking, no, since the payments to the PA sub-account of the Single TreasuryAccount are made by HQ under authorisation of the Director of DEVCO F.

d. What is the management role of Europeaid HQ and how are responsibilitiesdivided between the Europeaid and DEVCO.F?


The Director of Directorate F of EuropeAid gives prior authorisation for all transfers of fundsto the central treasury sub-account with the PA upon receipt of the ex-ante verification checksand the ex-post audit of the previous payments.

e. Is the EUREP solely responsible for the decisions taken under PEGASE DFS?


No, EuropeAid HQ, at Director level, authorises the transfer of funds to the central treasurysub-account of the PA upon receipt and approval of all the relevant documentation, whichincludes the ex-ante reports for the proposed payments and the ex post reports for the previouscompleted ones.

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f. Aren’t there any controls undertaken by DEVCO.F services or other DEVCOservices?


DEVCO F verifies the documentation received and, upon approval, authorises the transfer offunds to the central treasury sub-account of the Palestinian Authority.

30. In reply to question 17d. the Commissioner replied that given the very challenging andcomplex environment in which IMG operates, reinforced monitoring measures hadbeen put in place. Thus, agreements and contracts with IMG had been subject toadditional requirements, in particular in relation to additional reporting requirements,auditing and the transfer of equipment.

a. Could the Commission provide a copy of all annual risk analyses performedsince 2005 indicating full consideration of the risks associated to the activitiesrelated to IMG?


The risk assessment exercise is part of the preparation of the AAP’s (Annual audit plans) Itbecame compulsory since the 2010 Audit Plan.

Each Unit/Delegation prepares its plan in line with the Audit Plan Methodology. ThisMethodology includes a proper risk assessment exercise using a full risk analysis or a partialrisk analysis. When the latter is chosen, it is explained trough the narrative note. This riskanalysis is done for the country as a whole. The risks analysis indicates on which actions (orcontracts) future audits should focus.

EUREP applies the audit methodology applicable at EuropeAid. Except for contract 264701,included in the Annual Audit Plan 2012, they did not identify any particular risk for IMGcontracts, in particular taking into account the provisions of the special conditions (art 7.3.3 –mandatory audit at the end of the project) for contribution agreements, and the mandatoryexpenditure verifications for service contracts. For other AAP’s (2010, 2011, 2013), no otherIMG contract was identified as risky during the preparation of the AAP’s.

The documentation requested is provided to the Parliament according to the provision laiddown in the Framework Agreement (Annex II Forwarding of confidential information toParliament).

b. Were there any fraud allegations reported to the EC/FPI regarding contractsentrusted to IMG?


As mentioned in the reply to question 24(a), in October 2012 an official previously employedin EUREP had raised with Europeaid headquarters issues related to IMG, i.e. its status as an

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International Organization, issues related to their effective visa facilitation from the Israeliauthorities and the marital relation of local agents working in EUREP with IMG staff. As afollow up, Headquarters provided confirmation concerning the status of IMG, suggested thatprotocolary issues should be addressed to relevant EEAS services and instructed theconcerned person to report immediately any allegation or slightest suspicion against EUREPstaff so that OLAF and Europeaid are informed. Therefore, in this case Headquartersconsidered that the issues raised were duly addressed.

In October 2013, the Commission received a letter addressed to President Barroso, HR/VPAshton, Commissioners Piebalgs and Fule, from a lawyer of the above mentioned official.The letter claimed that the official had informed his hierarchy of possible irregularitiesconcerning IMG. According to this letter, these irregularities were allegedly discovered by theCourt of Auditors in their audit of the PEGASE DFS programme and during the DAS 2012.His hierarchical superior, the Head of Delegation, confirmed that such suspicions ofirregularities were not communicated to him. Furthermore neither the “Special report of theCourt of Auditors on Palestine” nor the “Audit in respect of the Statement of Assurance(DAS) 2012 – External Aid – Specific assessment on the West Bank and Gaza Strip” containany reference to possible irregularities, fraud or corruption.

For the sake of completeness, there are two closed OLAF cases concerning IMG where fraudallegations were made: Palestine (OF/2006/0234) and Iraq (OF/2008/0020 OLAF). OLAF didnot make any recommendations. However, in the Iraq case, OLAF mentioned that “theallegations related to the legality of the recognition of IMG as “international organisation” byEuropeAid, in order to benefit from consequent “facilitated” procedure to obtain EU funds,might have some merits but they are considered to be outside the competence of OLAF. As afollow up, in 2008, EuropeAid re-assessed the legal nature of IMG and reached the sameconclusion than in 2004: this entity could be regarded as an international organization in thesense of Article 43 of the Implementing Rules of the Financial Regulation.

The above is without prejudice to OLAF competences. In this regard, it should be recalledthat OLAF is independent in investigative matters and no comment should be made on theinvolvement of a person or body in on-going investigations.

c. If yes, what were the measures taken?


The measures taken have been explained in the response to question 30(b)..

31. In reply to question 17e. the Commissioner replied that all staff members were obligedto declare any conflict of interest they could incur during the accomplishment of tasks.

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a. Does normal administrative/secretary support staff who manage thedispatching of letters/contracts with contractors during the tendering proceduresign a confidentiality and impartiality declaration?


When dispatching and letters/contracts, a potential situation of conflict does not exist giventhat such documents are sent at the end of a given procedure approved by a number ofhierarchical levels above that of the administrative support staff concerned, when theContracting Authority has decided to announce to award or has decided to conclude a givencontract based on the recommendations of the Evaluation Committee, while subsequentlyinforming unsuccessful bidders about their results in the procedure. Therefore, a specificdeclaration does not need to apply for such support staff who carry out purely routine tasks.On the other hand, staff is required – through their employment contract – to respect generalconfidentiality and ethical principles while exercising their duties.

Article 9 of the special conditions of employment of the local agents states that the localagent shall be required to observe the utmost discretion regarding all facts and informationcoming to his[her] knowledge in the course of or in connection with the performance ofhis[her] duties. This article is directly applicable since is referred to in the employmentcontract. There are no other rules applicable (in particular the relevant articles of the staffregulations are not applicable to local agents).

b. If not, are there cases where such staff is exposed to potential conflict ofinterest due to their marital relations with IMG staff?


Reference is made to the above answer under a. Dispatching letters and dealing with generalcontractual aspects from an administrative point of view would not per se expose a staffmember married to a staff member of another organisation with which the Commission hasworking relations to a potential situation of conflict of interest in general terms. A potentialsituation of conflict of interest should be assessed on a case by case basis and, if established,necessary measures should be taken.

Although the Code of Conduct does not apply to local agents, article 9 of the specialconditions of employment of the local agents, stating that the local agent shall be required toobserve the utmost discretion regarding all facts and information coming to his[her]knowledge in the course of or in connection with the performance of his[her] duties, applies.See question 31.a.

For the sake of completeness, the code of conduct for staff member is available at thefollowing site:

http://ec.europa.eu/transparency/code/index_fr.htm

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.

32. In reply to question 17f. the Commissioner replied that in order to technically run theTIM/PEGASE systems and to perform requested controls, IMG and PWC experts hadbeen indeed located in the ADDAR premises in the past, and further, that since thedatabase was moved to EUREP office in October 2013, this was not the case anymore.

a. What triggered this relocation and why it has not happened earlier?


Appropriate office accommodations in East Jerusalem were very difficult to find in 2006. Thehotel in question was one of the few available solutions. EUREP requested a review of theprocedures in early 2012, with assistance from EuropeAid IT unit. Following the report,appropriate premises were found within the EUREP premises to host the equipment.

b. Were the hotel costs borne by the European Commission?


Yes, these costs were part of the budget of the contribution agreements/services contracts (inthe latter case, as incidentals, in accordance with the applicable contractual rules).

c. What was the monthly cost born by the EU budget for this hotel arrangementand under which contract?


The cost is set at 8 500 euro/month (including 1 700 euro/month for a dedicatedtelecommunications line between the hotel accommodation and EUREP offices). The costwas part of the contribution agreements/services contracts with IMG.

d. Was there a potential conflict of interest stemming from the IMG/PWC co-habitation?


A potential situation of conflict interest cannot be established by the mere fact that expertsfrom both organisations were working in the same building for technical and practical reasons(to conduct their work while being linked to the PEGASE database server). In fact, expertsfrom both organisation worked in separate offices.

e. How was this risk addressed by the European Commission?

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A potential situation of conflict interest cannot be established by the mere fact that expertsfrom both organisations were working in the same building for technical and practical reasons(to conduct their work while being linked to the PEGASE database server). In fact, expertsfrom both organisation worked in separate offices.

f. Did the Commission pay double reimbursements for both IMG and PWCaccommodation costs?


The offices made available by the Commission to experts both from IMG and PWC - wherealso the PEGASE database server was located - were covered by the agreements concludedwith IMG. IMG thus advanced the funds for paying the related accommodation costs whichwould be reimbursed by the Commission upon submission of the financial reports, subject toreviews by an external audit company before submission to the Commission where then adetailed desk review on the financial reports were conducted (following 4 eyes principles andthe financial circuits with 5 actors including the Authorising Officer by Subdelegation). Thus,there was no cost for this accommodation to be taken into consideration with regard to thePWC contracts.

33. In reply to question 17g. the Commissioner replied that there was no “hands off”policy and that, as far as PEGASE is concerned, IMG and PWC were independentactors within the overall process of the mechanism. How is this independencyguaranteed, especially since IMG and PWC experts had been located in the samebuildings (ADDAR premises)?


At times, experts of IMG and experts of PWC have indeed worked in the same building inorder to have technical access to the PEGASE database server. However, they are twoindependent actors in the PEGASE mechanism, having tasks with completely differentobjectives, and have worked in separate offices.

34. In reply to question 17g. the Commissioner replied that the Commission was not in aposition to comment on a private company's business practices and policies.

a. Was the risk of IMG and PWC using the same premises taken into account inthe Commission’s annual risk analyses since 2005 to date?


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IMG and PWC are not using the same premises. They are located in the same building.

The notion of risk should be regarded from 2 angles. As for the financial risk, see above replyto question 32f. The yearly risk assessment exercise covered contracts with both organisationfollowing the general principles as instructed by EuropeAid HQ while taking into account thatthe financial reports for both contracts were audited by external audit companies beforesubmission to the Commission and then were subject to internal desk ex-ante control by theCommission.

As for the risk of collusion, IMG and PWC were parties which the Commission contracted fordifferent purposes. Neither the yearly audits on the PEGASE mechanism conducted byexternal auditors other than PWC (e.g. Deloitte) nor the Court of Auditor’s PEGASEperformance audit report nor the various DAS reviews by the Court of Auditors highlightedany particular and concrete issue with regard to IMG and PWC partly working in the samebuilding.

b. Which measures were taken to address the risk?


A potential situation of conflict interest cannot be established by the mere fact that expertsfrom both organisations were working in the same building for technical and practical reasons(to conduct their work while being linked to the PEGASE database server). In fact, expertsfrom both organisations worked in separate offices.

35. In reply to question 17g. the Commissioner replied that the Terms of Reference for theaudits clearly specify that PWC has to deliver its report according to internationallyrecognised standards and rules.

a. Could the Commission provide the Budgetary Control Committee a sample ofthose reports dated prior to 2013 that would support that these reports complywith internationally recognised standards and rules?


The information is provided according to the provision laid down in the FrameworkAgreement (Annex II Forwarding of confidential information to Parliament).

b. Are the PWC experts employed under those contracts fully qualified auditorsand what were the Terms of Reference requirements of the EC regarding thispoint from 2005 to 2013?


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These experts have to comply with ToR's. The ToR of the relevant contacts with PWCstipulate under points 6.1.1 and 6.1.2 the requirements for key experts, category 1 (partner)and 2 (auditor) auditors, as well as for non-key experts (category 3-5 auditors), all with aminimum number of years of audit experience required (minimum 12 for partner down to 1year for junior auditors).

All the PWC experts employed under those contracts fulfilled these requirements.

36. In reply to question 17h. the Commissioner replied that Data concerning (potentiallyeligible) beneficiaries were basically transferred through CDs. Are these transfersperformed by IMG staff or received by delegation staff previously employed by IMGor having marital relations with IMG staff?


In the execution of their tasks within the EUREP premises, at times staff previously employedby IMG or having marital relations with IMG has received such CDs in order to supportinformation processing in the PEGASE IT system. Processing of the information andsubsequent financial transactions were done in line with the standard DEVCO financialcircuits (4 eyes principles: with 4 different actors involved, 2 from operational sections and 2from the financial section).

37. In reply to question 17h. the Commissioner replied that according to the proceduresput in place, the information flow on the PEGASE mechanism between all involvedparties should always transit through EUREP and that therefore EUREP was able tocontrol the information flow and to minimise the risk for abuse. How is the HoDenabled to supervise these aspects?


The Head of Delegation as the Authorising Officer by Sub-Delegation (as AOSD) has theoverall responsibility and authority to ensure that an appropriate system to minimise the riskof abuse for PEGASE is put in place.

38. In reply to question 17i. the Commissioner replied that it should be noted thatPEGASE DFS was a unique system put in place given the very particular situation inPalestine and that therefore, the modus operandi for running PEGASE was alsosingular.

a. Could the Commission please explain the particular situation in Palestineleading to the unique need to outsource ex-ante and ex-post controls?

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Co-operation with the Palestinian Authority takes place in very particular circumstances, inthe context of Israeli occupation, with an Authority which does not have the powers of a stategovernment and where part of the Palestinian territory, the Gaza Strip, is run by de factoauthorities with which the EU has no relations. By helping the Palestinian Authority to meetits wages and pensions bill for essential service providers and pensioners, and pay for socialallowances to the most vulnerable groups, the EU is making a tangible contribution to thepreparation of a two-state solution to the Israeli-Palestinian conflict. As this support isdirected towards individual workers, pensioners or social security recipient, it entails thescreening of data related to potentially over 100,000 beneficiaries in order to ensure, inter alia,that the EU funds are not directed to persons suspected of involvement in terrorism ororganised crime. Therefore, it was deemed appropriate to call upon the services ofinternationally reputable and experienced external audit companies in order to conduct such adetailed and complex task on a frequent (often monthly) basis, in close collaboration with theCommission.

b. What are the points distinguishing the situation in Palestine from other “fragileand conflict-affected countries” where EU financial aid is provided?


The particularity of EU financial aid under PEGASE that it is directed towards individualbeneficiaries and not towards an administration, a state or an organisation. This constitutes“Direct Financial Support” rather than budget support and is therefore is an exception to thegeneral approach of aid delivered by the EU. Palestine is in a unique situation with anadministration which controls only part of its territory and does not have full state powers andunder Israeli occupation. In addition, there is a geographical and political separation betweenthe PA in Ramallah, “in control” of the West Bank and the de facto administration of Hamasin the Gaza Strip, which is regarded by the EU as a terrorist organisation, and with which theEU is not able to interact.

c. Could the Commission provide the Budgetary Control Committee with theinternal rules/manual for the modus operandi of PEGASE DFS?


Relevant documentation is provided to the Parliament according to the provision laid down inthe Framework Agreement (Annex II Forwarding of confidential information to Parliament).

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39. In reply to question 17i. the Commissioner replied that given the complex nature ofthe system, professional audit services provided by internationally reputable auditcompanies were necessary.

a. Does this imply that the EC staff employed in Palestine under the Finances,Contract and Audit Section does not have or had this professional capacity?


In principle, Finance, Contracts and Audit staff conducts ex-ante verifications in their generaldaily work. Due to budgetary and human resource constraints, most of this is limited to deskreview. In order to get reasonable assurance on contractual and financial aspects, it iscommon practice to request services of professional companies which have the necessaryexperience but also the legal and statutory requirements to perform such tasks. This is evenmore valid if data related to 100,000 or more beneficiaries are involved, as it is the case forPEGASE. In addition, one should not forget the limitations on mobility imposed on manyoccasions by the Israeli authorities on EUREP staff.

b. Could the Commission provide the Budgetary Control Committee with theinternal document(s) establishing the reasoning for outsourcing the ex-ante/ex-post controls?



c. Could the Commission provide the Budgetary Control Committee with theinternal document(s) establishing how the ex-ante/ex-post controls wereapproved and since when?



d. Has the possibility to internalize the ex-ante/ex-post back again been examinedthoroughly? How?


The scale of the work and the resources available make this unfeasible, in particular given thecurrent budgetary constraints and staff cuts.

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In order to get reasonable assurance on PEGASE transactions where data related to 100,000or more potential beneficiaries are processed, it is very important to call upon the services ofprofessional companies which have the necessary experience but also the legal and statutoryrequirements to perform such tasks (international and reputable audit companies).

In addition, one should not forget the limitations on mobility imposed on many occasions bythe Israeli authorities on EUREP staff.

40. In reply to question 17i. the Commissioner replied that the Delegation closelymonitored the auditor's work, e.g. through the review of draft audit reports and that asfar as the Commission was aware, the controls and checks put in place by the auditorsand EUREP were appropriate for their objectives.

a. What is the role of DEVCO.F in these controls?


As mentioned in the reply to question 29(b), EuropeAid HQ, at Director level, authorises thetransfer of funds to the central treasury sub-account of the PA upon receipt and approval of allthe relevant documentation, which includes the ex ante reports for the proposed payments andthe ex post reports for the previous completed one.

b. Is DEVCO F. services part of the financial circuits for authorising transactionsunder PEGASE DFS?


EuropeAid HQ, at Director level, authorises the transfer of funds to the central treasury sub-account of the PA upon receipt and approval of all the relevant documentation, whichincludes the ex ante reports for the proposed payments and the ex post reports for the previouscompleted ones.

c. If yes, for which transactions the AOSD is under DEVCO.F?


The Authorsing Officer by Sub-Delegation is under DEVCO F for all transactions.

41. In reply to question 17i. the Commissioner replied that the cost for the previous PWCaudit contracts (PEGASE VPF+CSP programs) had amounted to 7 MEUR over 7

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years. Is there a cost-effectiveness analysis of those costs? If yes, Could theCommission provide the Budgetary Control Committee with it?


The Commission considers that MEUR 7.5 (or 0.5% of the payments made under TIM andPEGASE), is the price to pay for security of the transactions in a highly sensitive politicalcontext. Nevertheless we are examining ways in which the same level of assurance could beprovided in the context of the ECA recommendations on this matter.

42. In reply to question 17i. the Commissioner replied that the beneficiaries underPEGASE are also screened against the international sanctions list via a specificsoftware.

a. Could the Commission describe this specific software?


The software "World Check" has been replaced recently (in August) by the software "WorldCompliance" following tendering (negotiated procedure where a number of potentialproviders were invited) which resulted in lower cost. The principle is that names of potentialbeneficiaries are checked against international sanction lists and other ad-hoc lists, in the caseof Palestine, both in the Arabic original and in the English transcription of the name.

b. How does the Software work?


The principle is that names of potential beneficiaries are checked against internationalsanction lists and other ad-hoc lists, in the case of Palestine, both in the Arabic original and inthe English transcription of the name.

The "Verification processes under the new mechanism", which gives information on how thesoftware works, is provided to the Parliament according to the provision laid down in theFramework Agreement (Annex II Forwarding of confidential information to Parliament).

c. Who does it belong to?


As with most software products, the user acquires a licence against a fee to use the product fora given period. Reference is made to international and national laws governing copyright andintellectual property aspects of IT tools as well as the general practices in the IT industry.

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d. Is it used by other Commission services?


To our knowledge, no. Delegations to Syria and Libya have been involved in discussions, butso far, they do not use the system.

43. In reply to question 18. the following question has not been answered: Taking intoaccount the recent articles in the press (from 15/10/2013 onwards) regarding the up-coming ECA report on Palestine, how many of those contracts are on-going inPalestine? Since when is IMG benefiting from contracts signed with the EC foractivities in development? How many contracts and what is the total value of?


As mentioned in the answers to questions 18(a) and 16(a) of the initial Written Questionnaire,in Palestine, 2 contracts with IMG are on-going (1 DEVCO, 1 FPI).

The first contract with IMG was concluded in 1995 for Bosnia and in 2002 for Palestine.

There were 17 contracts concluded with IMG in Palestine for a total value of EUR 29 million(16 DEVCO, 1 FPI).

The total number of contracts signed between the Commission and IMG is 73 for a total valueof 141 MEUR.

44. In reply to question 18a. the Commissioner provided an overview about the contractsthat it was implementing. How many of those contracts are signed under directaward/negotiated procedures with single tender?


A list of contracts and agreements signed by IMG since 1995, grouped by type of contract andprocedure, were provided in the reply to question 16(a) of the initial Written Questionnaireand repeated under question 1(a) of the current Questionnaire.

In total there are 26 negotiated procedures for the award of procurement contracts and 23direct awards of grants in Azerbaijan, Bosnia and Herzegovina, Cyprus, Egypt, FYROM,Haiti, Iraq, Kosovo, Lebanon, Libya, Myanmar, Serbia, Tunisia and the West Bank and GazaStrip. These were all based on the cases provided for in the applicable rules of the FinancialRegulation and its Implementing Rules; in most cases the reasons was the crisis situation onthe basis of Article 168(2) of the Implementing Rules.

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45. In reply to question 18ci. the Commissioner referred to the reply to question 16b.However, the answer under 16b. does not fully cover the question as it does notrespond on whether an artificial monopoly is installed and on whether IMG reliesmainly on EU funding. Therefore:

a. Is the EU funding to the IMG creating any dependency on IMG’s overallexistence and vice-versa?


As mentioned in the reply to questions 1(a) and 11(a), IMG is not almost exclusivelydependent on European Commission funding, as explained in the reply to question 1(a) above.The European Commission would represent around 50% of the IMG’s portfolio of projectsduring the last three years. Countries such as United Kingdom, Sweden, Italy, Spain, Croatia,United States, Norway or Switzerland also work or have worked with IMG. EU MemberStates would represent around 20-25% and non EU-States less than 20% in that period.

The EU cooperation approach and portfolio is progressively evolving from 'capitalinvestments and infrastructures' where IMG specific engineering and technical experiencewas a crucial added-value, to a 'Policy Reforms' approach (this evolution started in 2012 andhas been confirmed in the draft Single Support Framework 2014-2015 (ENI ProgrammingDocument) – where other Technical Assistance companies could also provide the expertiseneeded.

It has to be noted that the Commission is using other organisations in post-conflict zonecountries, notably the World Bank, United Nations agencies or national developmentagencies.

b. Is the Commission relying too heavily on the IMG when it comes to contractsin post-conflict zone countries?


The Commission does not believe so.

On a case by case situation, each action is implemented according to the assessment of theauthorizing officer to define which partner has the best experience in order to achieve theresults of the programme.

It has to be noted that the Commission is using other organisations in post-conflict zonecountries, notably the World Bank, United Nations agencies or national developmentagencies.

46. In reply to question 20. the following questions have not been answered:

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a. Following a written question (E-008747/8/2013) to the Commission and theEEAS on IMG there are two former IMG-staff members which are nowworking in its services as local members of staff. Where are they employed bythe EC and since when?


As mentioned in the answer to question 20 of the initial Written Questionnaire: “One personwho formerly worked on the TIM (Temporary Implementation Mechanism) file in IMG isemployed as a Task Manager in the Finance, contracts and Audit Section of the Delegation.The other, formerly employed for administrative support tasks in IMG, is employed forsecretarial tasks in the same section. “

More detailed information is provided according to the provision laid down in the FrameworkAgreement (Annex II Forwarding of confidential information to Parliament).

b. Did the EC prior to their employment duly examine the potential conflict ofinterest and was it declared by those EC local staff members?


During the selection process of the staff in question, all relevant rules and procedures wereapplied.

During their career, all staff members should declare any conflict of interest they could incurduring the carrying out of tasks. Non-disclosure of any potential conflict of interest wouldexpose staff members to disciplinary sanctions. Both staff members concerned are under thecontrol of several layers of management control, thus ensuring that potential conflict ofinterest situations do not arise.

c. How is this information communicated to their supervisors?


Staff members that consider that a conflict of interest exists should notify it to their superiors.

The legal basis is art 9 of the special conditions of employment which states that:

Without prejudice to local legislation, a member of local staff shall be subject to the followingobligations :

-He[she] shall perform his[her] work in compliance with the instructions of his[her] superiors;

-He[she] shall be required to observe the utmost discretion regarding all facts and informationcoming to his[her] knowledge in the course of or in connection with the performance ofhis[her] duties.

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d. How were they selected and was any EC staff included in the selectioncommittee/process that has first degree family relations with IMG senior staff?


They were selected by a recruitment panel composed of three EU officials following thestandard procedure applicable to those cases.


e. Were there more such cases in the past? If yes, please provide the number ofthose cases and the location.


Delegation does not collect information on the employer of staff family members. RequiringDelegations to collect that information could be incompatible with the personal dataprotection rules and similar provisions. However, during their career, all staff members shoulddeclare any conflict of interest they could incur during the carrying out of tasks. Non-disclosure of any potential conflict of interest would expose staff members to disciplinarysanctions.

f. How many former EC staff are currently employed by IMG and until whensuch staff was last employed by the EC?


Three persons who worked under a Commission contract are currently employed aspermanent staff in IMG.


g. How is the declaration of conflict procedure embedded in the internalmonitoring procedures of the EC? Were there any disciplinary actions takenfor any local staff not having declared the potential conflict of interest to theirsupervisor?


There is no formal systematic declaration of conflict procedure. Staff members that considerthere is a conflict of interest have to declare it themselves to their superiors. Managers that

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consider that there is reason to suspect a conflict of interest have to raise the issue with thelocal staff.

The relevant provisions in the staff regulations do not apply to local agents since the localagents chapter in the CEOS does not refer to them. Financial Regulations do not applyautomatically to local agents.

47. In reply to question 19. the Commissioner replied that in 2006 and in 2008 OLAF hadcarried out two investigations concerning IMG, and further that, they had concernedallegations of embezzlement in an EU funded road rehabilitation project in Palestine,and irregularities in the implementation of EC funded projects in Iraq. He furtherexplained that both investigations had been closed as non-cases since the allegationscould not be substantiated.

a. Were though any recommendations issued?


For investigation OF/2006/0234 OLAF did not make any recommendations.

In its Final Case Report OF/2008/0020 OLAF concluded that “the allegations related to thelegality of the recognition of IMG as “international organisation” by EuropeAid, in order tobenefit from consequent “facilitated” procedure to obtain EU funds, might have some meritsbut they are considered to be outside the competence of OLAF.

Consequently, OLAF did not make any formal recommendation in this regard but left it toEuropeAid and ECHO to give this issue the follow-up they considered appropriate.

b. If yes, could the Commission provide a full list of this recommendation as wellas references and information on how the Commission implemented them?


Even if no formal recommendation was issued, EuropeAid took into account OLAFconclusions and subsequently carried out further analysis of the issue in 2008. As a result, itconcluded again that IMG fulfilled the criteria to qualify for the status of an internationalorganisation, as it did in 2004.

c. Were there other OLAF investigations opened in 2012 concerning IMG?


OLAF has not opened any investigations in 2012 concerning IMG.

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d. Have incoming information concerning IMG been dismissed by Unit 01 in2012?


The Internal Audit Control (IAC) Unit from EuropeAid (Unit 01) did not receive anyinformation concerning IMG and therefore could not have “dismissed” it.

The IAC has conducted an audit on PEGASE and it did not contain any finding or anyparticular concern relating to IMG. Moreover in the Special report 14/2013, the EuropeanCourt of Auditors does not refer to it either.

e. Were there other OLAF investigations opened in 2013 concerning IMG?


It should be recalled that OLAF is independent in investigative matters and no commentshould be made on the involvement of a person or body in on-going investigations.

f. Have incoming information concerning IMG been dismissed by Unit 01 in2013?


As mentioned in point d) the Internal Audit Control (IAC) Unit from EuropeAid (Unit 01) didnot receive any information concerning IMG and therefore could not have “dismissed” it.

g. Is it usual to have several recurrent OLAF investigations over the activities ofone body like IMG?


It is possible that OLAF undertake recurrent investigation concerning one entity.

In principle it is according to the rules and common investigative practice possible wherethere are different allegations/ different subject matters to open different cases even if theperson or body concerned is the same in both cases. The investigative body is free to split oneinvestigation into two, to open two different investigations or to merge two already existingcases into one depending on the particular circumstances.

h. How is the EC addressing such recurrent OLAF investigations in its riskanalyses?

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In case that OLAF investigations show heightened risk of fraud/irregularities with regard toan entity, EuropeAid includes, if necessary, this entity into its annual audit plan.

i. Was the delegations’ management staff (including the respectively concernedHead of Sections) informed on these OLAF investigations timely and upontaking up duty?


Management staff is timely informed of OLAF decisions to open or not an investigationfollowing a complaint on subjects under their competence.

j. What were the measures introduced to address the existence of thoseinvestigations so as to avoid unnecessary oversights or risks for those involvedin the project management of IMG related contracts at EUREP/HQ level?


No measures can be introduced during investigation since OLAF is an independent body anddoes not provide inform to the concerned services during the investigation. At the end of theinvestigation, OLAF may propose recommendations to the Commission’s services concern,who should then take action if relevant. In these two cases there were no recommendations, asexplained in point a above.

k. Is Commission staff, that is subject to allegations, duly informed?


The Commission would invite the Honourable Members to access the link below to theguidelines on investigative procedures for OLAF staff.

http://olaf-intranet/assets/public/Uploads/Staff-issues/GIP-18092013.pdf

In addition the obligations for Commission staff who report allegations and the protectionwhich they receive are set out in the staff regulations in Article 22a which reads as follows:

Article 22a

1. Any official who, in the course of or in connection with the performance of his duties,becomes aware of facts which give rise to a presumption of the existence of possible illegalactivity, including fraud or corruption, detrimental to the interests of the , or of conductrelating to the discharge of professional duties which may constitute a serious failure tocomply with the obligations of officials of the , shall without delay inform either his

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immediate superior or his Director-General or, if he considers it useful, the Secretary-General,or the persons in equivalent positions, or the European Anti-Fraud Office (OLAF) direct.

Information mentioned in the first subparagraph shall be given in writing.

This paragraph shall also apply in the event of serious failure to comply with a similarobligation on the part of a Member of an institution or any other person in the service of orcarrying out work for an institution.

2. Any official receiving the information referred to in paragraph 1 shall without delaytransmit to OLAF any evidence of which he is aware from which the existence of theirregularities referred to in paragraph 1 may be presumed.

3. An official shall not suffer any prejudicial effects on the part of the institution as a result ofhaving communicated the information referred to in paragraphs 1 and 2, provided that heacted reasonably and honestly.

4. Paragraphs 1 to 3 shall not apply to documents, deeds, reports, notes or information in anyform whatsoever held for the purposes of, or created or disclosed to the official in the courseof, proceedings in legal cases, whether pending or closed.

l. Is Commission staff that is invited by OLAF to testify in the course of theseinvestigations duly protected by the Commission? How?


The Commission would invite the Honourable Members to access the link below to theguidelines on investigative procedures for OLAF staff.

http://olaf-intranet/assets/public/Uploads/Staff-issues/GIP-18092013.pdf

48. In reply to question 20. the Commissioner replied that one person who formerly hadworked on the TIM (Temporary Implementation Mechanism) file in IMG wasemployed as a Task Manager in the Finance, contracts and Audit Section of theDelegation.

a. Do his/her functions relate in any way to PEGASE DFS and IMG?


Yes. As financial task manager, the person in question performs tasks under PEGASE in linewith the so-called GESTFIN ("gestionnaire financier") profile, i.e. initiating transactionswhich are verified by the so-called RESPFIN ("responsable financier") within the standardDEVCO financial circuit (involving 4 actors, 2 from operational sections and 2 from thefinancial section).

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b. If yes, how does the Commission monitor the potential conflict of interestsince the person’s recruitment?


A potential situation of conflict of interest cannot be established in general terms, it needs tobe assessed on a case by case approach, for each file individually. In view of this, the personin question is not in a situation whereby he/she could substantially influence decisions byEUREP regarding PEGASE or IMG. Secondly, the person is fulfilling his/her tasks in thestandard financial circuit, where transactions are initiated by one person and validated byanother, both from operational and financial sides. This staff member is under several layersof managerial control which should ensure that conflict of interest situations do not arise.Thirdly, in the case of PEGASE, external auditors are involved to conduct ex-ante and ex-postverifications on transactions. Fourthly, if the person in question was indeed in a situation ofconflict of interest without declaring it, he/she could be exposed to disciplinary measures. Thestaff member concerned is under the control of several layers of management control, thusensuring that potential conflict of interest situations do not arise.

49. In reply to question 20. the Commissioner replied that another person, formerlyemployed for administrative support tasks in IMG, was employed for secretarial tasksin the same section

a. Do his/her functions relate in any way to PEGASE DFS and IMG?


That person fulfils general administrative support tasks which may include PEGASE andIMG files (preparation of letters etc.).

As local agent grade IV, the person in question performs tasks under the supervision of the 2other officials of the section next to the respective Head of Section as well as that of the Headof Delegation. Furthermore, the person in question is supervised by the Head ofAdministration for administrative matters.

This staff member is under several layers of managerial control which should ensure thatconflict of interest situations do not arise.

b. If yes, how does the Commission monitor the potential conflict of interestsince the person’s recruitment?


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As local agent grade IV, the person in question performs tasks under the supervision of the 2other officials of the section next to the respective Head of Section as well as that of the Headof Delegation. Furthermore, the person in question is supervised by the Head ofAdministration for administrative matters. This staff member is under several layers ofmanagerial control which should ensure that conflict of interest situations do not arise.

50. In reply to question 20. the Commissioner replied that the Commission is not in thepossession of their job description with their former employer IMG. However, at thestage of recruitment, the candidate must have submitted a CV. The CV should mentiontitle and tasks at the time employed in IMG.

a. Could the Commission provide the Budgetary Control Committee with a copyof the respective recruitment files, if needed under the appropriateconfidentiality constraints?


The information is provided according to the provision laid down in the FrameworkAgreement (Annex II Forwarding of confidential information to Parliament).

b. How has the Commission checked the credibility of the career record of thesestaff members?


At recruitment the delegation fills in a standard CV for the local agent based on thedocuments provided by the local agent. The recruitment panel can verify the claims with thecandidate or his former employers but has no procedural obligation to do so. There is no otheradditional verification procedure.

51. In reply to question 20. the Commissioner replied that during the selection process ofthe staff in question, all relevant rules and procedures were applied.

a. During the selection procedures for those staff, were there any other EC staffhaving marital relations with IMG staff part of the selection panels?



b. If yes, how was this addressed and supervised by the HoD?

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See previous reply.

52. In reply to question 20. the Commissioner replied that non-disclosure of any potentialconflict of interest would expose staff members to disciplinary sanctions.

a. Did they declare it?


No. However, this question implies that there indeed would have been a potential conflict ofinterest which cannot be established by the mere fact that staff was formerly employed byother companies/organisations with which the Commission deals on a contractual basis. Apotential situation of conflict of interest needs to be assessed on a case by case basis for eachindividual contract and file and should not be declared in general terms.

.

b. If yes, would the Commission provide a copy of these declarations to theBudgetary Control Committee, if needed under the appropriate confidentialityconstraints?


A potential situation of conflict of interest needs to be assessed on a case by case basis foreach individual contract and file and should not be declared in general terms.

53. In reply to question 20. the Commissioner replied that in their current assignments asfinancial task manager and administrative/secretarial support in the Delegation, thestaff members concerned were not considered to be involved in tasks that may entail apotential conflict of interest with regard to IMG, and further, that they were not insuch a position that could enable them to have the opportunity to unduly influencedecisions which were taken by the Delegation on files related to IMG. Furthermore,the Commissioner explained that this aspect was re-assessed on a frequent basis.

a. Could the Commission explain the reasoning behind this affirmation?


The financial task manager does not deal with files related to IMG contracts.Theadministrative/secretarial support staff works under the supervision of Commission officialsand by the nature of her tasks is not involved in decision making. Their work is subject to

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several layers of management control, thus ensuring that potential conflict of interestsituations do not arise.

Contractual decisions with regard to IMG (or any other entity) are taken by the responsibleAuthorising Officer by Sub-Delegation following a financial circuit including 4 actors and/orthe recommendations of an evaluation committee with 5 members.

b. Who is entrusted with the frequent re-assessment?


The Delegation and Commission HQ, formally through the yearly evaluation exercise forstaff. If situations arise (e.g. preparation of tenders or calls for proposals) where a potentialsituation of conflict of interest might be established for the staff in question, an assessment ismade on an ad-hoc basis during the year. The consequence may be a change in theorganisation chart

c. On what kind of information and sources is the re-assessment based?


This is based on information collected for the yearly evaluation exercise for staff.

d. What is the role of DEVCO.F in regard to the re-assessment?


DEVCO F submits changes in the organisation chart to Directorate R, responsible forpersonnel matters.

54. In reply to question d. (subsequent to question 20.) the Commissioner referred to hisreply to question 20., however, only the reply to question 20. only includesinformation for Palestine. What about other countries?


As mentioned in 48(b), there is no formal systematic declaration of conflict of interest atrecruitment. In our opinion the conflict of interest can only be assessed for each specific filedealt with by the local agent by the local agent himself or by his line manager. Staff membersthat consider there is a conflict of interest have to declare it themselves to their superiors.

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55. In reply to question 21. the Commissioner replied that in Palestine, the Commissionhad been made aware that two local agents of secretary level did have family relationswith IMG employees and further that these specific cases were currently underexamination.

a. Who is entrusted with this examination and why now and earlier?


The Delegation does not collect information of the employers of staff family members.

b. What is the role of DEVCO.F?


DEVCO F has no role in this context, but will be informed of the results of the examination.

c. Has the staff had declared their marital relationships and what are the positionsheld by their spouses employed by IMG?


The Delegation does not collect information of the employers of staff family members.


56. In reply to question 21. the Commissioner replied that the Commission is only awareof one special advisor to the Standing Committee of IMG being a former Commissionofficial. The Commissioner explained also that the person had received a priorauthorisation according to the applicable EU rules for such an activity (art. 16 of theStaff Regulations) on 4 April 2013 including a two-year restriction from dealing withgrant or contract-related files pertaining to DEVCO in the Neighbourhood Area, witha particular mention of the following countries: Algeria, Armenia, Azerbaijan,Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya, Moldova, Morocco,Palestine, Syria, Tunisia and Ukraine..

a. Until when was this person employed in the EU institutions?


30 Novembre 2011

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b. What was his/her career path in the EU institutions?


The reply to this question is provided according to the provision laid down in the FrameworkAgreement (Annex II Forwarding of confidential information to Parliament)

c. By whom was the prior authorization signed?


Director general of the DG Human Resouces (as AIPN).

d. Could the Commission provide a copy of the prior authorisation mentionedabove?


The document is provided according to the provision laid down in the Framework Agreement(Annex II Forwarding of confidential information to Parliament)

e. When did the two-year restriction start?


The day after the former Commission staff terminated his employment relation with theCommission (cf, response to question a), hence 1 December 2011

f. As the list of countries for which restriction had been applicable does notinclude all countries where EU finances IMG related contracts, could theCommission please provide the reasoning of the non-comprehensive list?


Article 16 of the Staff Regulations requires that officials intending to engage in anoccupational activity, whether gainful or not, within two years of leaving the service shallinform their institution thereof. The Appointing Authority may, having regard to the interestsof the service, either forbid him from undertaking it or give its approval subject to anyconditions it thinks fit.

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Prior authorisations on the basis of Article 16 of the Staff Regulation may be subjected toconditions, which should be proportionate and limited to the area(s) where a conflict ofinterest may exist. It is always necessary to find the appropriate balance between thefundamental right to choose an occupation and to engage in it, and the necessity to safeguardthe legitimate interest of the institution.

The former Commission official in question was the Director for the Mediterranean and thenNeighbourhood Area from 2001 to 2006. During this period, he was involved in the signatureof contracts and agreements concerning IMG in that geographical area.

As a consequence DG DEVCO proposed to DG HR to include a restriction in the priorauthorisation concerning the countries in the Neighbourhood Area, since the formerCommission official only signed contracts with IMG in this region. The prior authorisationfrom DG HR addressed to the former Commission official by letter of 4 April 2013 containsthis restriction.

g. Was the previous employment of that ex-Commission official in DG CLIMAalso taken into account when approving the relevant prior authorisation?


Yes. DG CLIMA has been consulted by DG HR and did not consider that any restrictionshould be applicable.

h. Did the Commission examine whether this special advisor had and maintainsprivileged relationships with current DEVCO senior and middle managementstaff working especially under DEVCO.F?


The special advisor does not maintain any sort of “privileged relationship” with his formercolleagues still working in EuropeAid, if by “privileged” is meant relations which could leadto a conflict of interests.

i. Was the relevant Commission staff informed on the potential conflict ofinterest?


They were informed of the content of the prior authorisation given by DG Human Resources.

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j. Is there any risk for the financial interests of the EU due to these privilegedrelationships ensuing from previous professional relationship which includethe position of their previous line manager?


In line with the answer to question h, the Commission does not see any such risk.

57. In reply to question 23. the following questions have not been answered:

a. Are now or in the past IMG staff benefiting via these contracts of enhanceddiplomatic status, granted using the EEAS internal procedure foreseen forEEAS/EC staff working in delegations?


As for EUREP, only the Representative enjoys an enhanced diplomatic status as per theVienna Convention. The work and residence status of all other EUREP staff members aregoverned by another regime applicable in Israel. Therefore, EEAS/European Commission arenot in a position to facilitate a 3rd party to obtain a status to which their own staff is notentitled to.

b. Does any other EU funds' beneficiary enjoy such privileges?



The documentation on the status and privileges granted to IMG by the Palestinian Authoritiesis provided to the Parliament according to the provision laid down in the FrameworkAgreement (Annex II Forwarding of confidential information to Parliament).

58. In reply to question 23. the Commissioner replied that Contracts awarded by theCommission did not provide any diplomatic status to the staff involved in theirimplementation, and further that actions by the different implementing organisationsremain actions of those organisations even if EU financial contribution was provided.

a. Does this answer mean that IMG staff never benefited from enhanceddiplomatic status arrangements granted by the EC?

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b. If staff never benefited from enhanced diplomatic status, could theCommission provide justification and responsibility for such an apparentlyerroneously taken decision and what sanctions were imposed to thoseresponsible?


The staff did not benefit from diplomatic status granted by the Commission or the EEAS.

59. In reply to question 23. the Commissioner replied that the Commission demandedvisibility of the EU contribution and further that contractors or entities managing EUfunds had to ensure the visibility of EU financing. The Commissioner moreoverexplained that these requirements had been included in the contracts and agreementssigned with them and were based on the guidelines provided in the Communicationand Visibility Manual for EU External Actions.

a. Do the rules on visibility allow contractors to use the EU logo on their businesscards?


The contractors usually put the name of the corresponding EU project, including the EU flagon their business cards. This should be done in a way that cannot create confusion on the factthat they are not part of the Commission/EEAS Services. It is incorrect if IMG would use theEU flag alone without the mention (just as for other visibility products) as this may leadpeople to believe they are representing the EU which is not the case.

In general and according to the 'Communication and visibility manual for EU ExternalActions' '...contractors or implementing partners or international organizations should usetheir normal stationery..., but should add the ... EU flag...The graphic identity of the EU mustenjoy an equally prominent place and size as that of the contractor or implementing partner.'(ch. 4.1). All the business cards that we have seen respect these conditions.

b. Does IMG comply with the EC rules on using for visibility purposes the EUlogo?


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To the best of our knowledge IMG complied with the Commission’s rules on using forvisibility purposes the EU logo. Nevertheless, in the event that a case of non-compliance withsuch rules came to light, the Commission would ask the organisation to remedy theseforthwith and shall take appropriate measures

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